Pepco Group Stock

Good morning, everyone, and thank you for joining our Q3 fiscal year '26 conference call. I'll first run, as usual, through a few highlights from our Q3 performance, followed by some comments on our strategic positioning as a now pure-play Pepco business before handing over to Willem, who will run you through the specifics surrounding the sale of Dealz and the resulting strength and financial profile of the group as well as our Q3 trading in more detail.

Let me first highlight that unless otherwise stated, all the figures throughout this presentation exclude Dealz and the like-for-likes shown are excluding FMCG.

With that, let's turn now to Slide 3, please.

Slide 3, we delivered strong revenue growth in Q3, up 8.5% to EUR 1.1 billion and like-for-like revenue growth of plus 5.4%. After a trickier start in April, we returned to accelerated momentum in May and June. This performance was driven by very solid performance in North and South CEE, which both delivered plus 3.6% like-for-like revenue growth as well as strong growth in Western Europe, where we continue to see an exceptional response to our customer value proposition following the exit of FMCG.

In Q3, Western Europe delivered like-for-like revenue growth of 15%, reinforcing our conviction to accelerate our rollout in the region for fiscal year '27 onwards. On a 2-year basis, Q3 like-for-like revenue was up by approximately 10.2%. In addition, we announced the agreed sale of Dealz on 3rd of June. This completes our exit of FMCG and our goal of becoming a simplified and streamlined group focused solely on Pepco.

I will touch on this more in the following slides. And lastly, as previously announced, we plan to launch an up to EUR 400 million tender buyback, which we remain on track to complete before the end of this financial year. We'll have more news on this in due course.

Turning now to Slide 4. I wanted to take a moment to really highlight the strategic milestones we've hit over the past 12 to 18 months in our effort to simplify the group and turn around our performance. We've been clear on our intention to exit FMCG since the Capital Markets Day in March 2025. The start with the Iberian Pepco Plus conversions in March through August last year. We completed the sale of Poundland in June last year, which was a pivotal milestone for the growth trajectory of the group. And last month, we announced the agreed sale of Dealz.

As a result, we have now completed our goal of becoming a pure-play Pepco business focused on one highly scalable brand and efficient format with a compelling customer value proposition, strong business momentum, a strengthened financial profile and a focus on delivering sustainable and profitable growth, as well as enhanced shareholder returns.

Go on to Slide 5. Let me briefly remind you of the stronghold of a pure-play Pepco company. Firstly, we operate our Pepco stores on very strong economics. We have a standardized format across our geographies and can open new stores in a very efficient way.

These stores pay back quickly, generating high returns and significant cash, which is more than sufficient to both reinvest in accelerated growth and enable sector-leading returns for our shareholders. You've seen this through our completed share buyback program, the announced EUR 400 million in tender buyback and our commitment to increase our regular dividend payout ratio over time to approximately 40%.

In summary, with our transformation efforts over the past 12 to 18 months, we have now created a self-funding and profitable growth engine.

Lastly, on Slide 6 -- over to Slide 6, please. Before I hand over to Willem, I would just like to recap on our strategy for growth as outlined in our March 2025 CMD. Pillar 1 is now complete. Our overall strategy remains unchanged, but we are now able to accelerate from a strengthened platform and drive continued strong growth for the group.

We're focused on top line growth through measured expansion in CEE, our accelerated rollout to ensure we win in Western Europe, digitizing and enhancing our customer proposition as well as upgrading our core operating platform, which underpins the success of all our pillars.

Continued execution in line with our strategy ensures we are well positioned for growth going forward. With that, Willem, over to you.

Good morning, everyone, and thank you for joining the call. I will talk you through our quarter 3 trading shortly, but let me first spend a few moments on the Dealz exit.

Next page, please. Hopefully, you've all seen our announcement on the 3rd of June, but let me cover the key elements of the transaction now as a quick reminder. We have agreed to sale of 100% of our Dealz shares to Modella Capital, a specialist European retail investor for a nominal consideration. This was subject to customary Anti-trust approval, which is now being received by Modella and completion is expected imminently. And we will provide a further announcement and future announcement when appropriate. As part of the transaction, we will provide an 18-month asset-backed facility of up to GBP 20 million.

And importantly, we retained the right to 35% of the proceeds of any future sale, providing potential upside further down the line. The sale of Dealz provides many benefits to Pepco, as Stephan touched on earlier. It not only completes our exit of lower-margin FMCG products, it increases our focus on our core Pepco business, drives enhanced profitability and returns on capital and improves our cash generation.

Turning now to Slide 9, which shows this more clearly. Here, you can see the comparative financial performance of both Pepco and Dealz and it's clear to see why we are in a stronger position following the sale. In H1 '26, Pepco generated strong like-for-like growth of plus 4.6% versus a negative 8% like-for-like at Dealz and the gross margin of Pepco was almost double that of Dealz.

In addition, the absolute EBITDA generated by Dealz was negligible at the group scale, impeding the profit growth of group. There will be some impact of revenue following the exit as Dealz generated around 7% of group revenue, but the material improvement to group profitability and overall financial performance is more than apparent.

In the quarter 3 release, which we disclosed this morning, we included detailed financial statements for H1 on a pre- and post- Dealz inclusion basis to allow you all to properly understand and model the shape of Pepco going forward.

This data is for H1 as we appreciate that many of you want to understand the impact on half year fiscal '26 and fiscal '25 to assist you in modeling Pepco going forward. For this purpose, we've also provided updated guidance for fiscal '26 for Pepco going forward, but more on that later.

Let me turn now to our trading performance in quarter 3. To be clear, what we are showing here is the trading performance of Pepco only. And as at the half year results, we are showing performance in our new geographical split, North, South and West Europe. You can see the countries which make up each region in the footnote at the bottom of the slide.

In quarter 3, we delivered revenue growth of 8.5%, driven both by our new store opening program and strong like-for-like growth, excluding FMCG of 5.4% in the quarter. This is driven by a 15% like-for-like growth in Western Europe, further validating our plans to accelerate store openings in the region on fiscal '27 and 3.6% growth in both North and South CEE, a solid performance from both regions in a competitive market. We no longer report it as a stand-alone segment, but for clarity, Poland continued to deliver positive like-for-like of 2.2% in quarter 3.

Our like-for-like performance was supported by improved availability, continued focus on our price leadership position, greater full price contribution as well as favorable warmer weather in May and June after trickier conditions through April, which we also were negatively impacted by the timing of Easter, which benefited March this year, and we commented on in the half year results.

Across the first 9 months of fiscal '26, we delivered like-for-like growth -- revenue growth of 4.9%. The absolute revenue growth stood at 6.4%. As we've mentioned previously, our reported growth was materially impacted by the exit of FMCG, and you should expect our revenue growth in quarter 3 and quarter 4 to accelerate versus quarter 1 and quarter 2 as we lap prior year periods with significantly lower levels of FMCG contribution. For quarter 3, this is already noticeably visible in our reported results. Turning now to Slide 11, where this is highlighted. I want to take a moment to focus on the trajectory of reported versus excluded FMCG like-for-likes.

In the chart on the right, it is clear to see these metrics converging as the prior year FMCG contribution reduces for the year but to the higher levels as we previously had indicated. In quarter 3, there is just 1.2% gap between both metrics. And going into quarter 4, there will be negligible impact from prior year FMCG contribution. So you should expect these numbers to converge even further.

As we already disclosed in our H1 results last May, we continue to see stores that have lapped the FMCG exit in Iberia performing strongly. As we move into fiscal '27, we will no longer report 2 LFL metrics as they will be one and the same.

On to Slide 12. As I mentioned earlier, the group is in a much stronger gross margin position following the exit of Dealz and the exit from FMCG in Iberia. In the chart on the right, you can see our pro forma margin progression, which for 9-month fiscal year '26 was up 360 basis points versus half year 1 fiscal '25.

This is driven in part by the product margin to have replaced lower-margin FMCG sales with higher-margin clothing and general merchandise sales, i.e., mix, but furthermore, supported by continued ForEx tailwinds as well as efficiencies within our supply chain and sourcing.

Let me now finish with our revised guidance on Slide 13 before I hand back to Stephan to conclude. Next slide, please. Here you can see a breakdown of our previous fiscal '26 guidance in the gray box on the left and now our new restated guidance for the group, excluding Dealz in the pink box on the right, along with the revised pro forma fiscal '25 base in euros for the key financial metrics, such as Revenue, EBITDA and PAT.

This clearly underscores the strong financial performance of Pepco. Crucially, this is not just a guidance restatement as we have upgraded the guidance for several of these metrics, such as gross margin and EBITDA following the strong performance of Pepco year-to-date.

Our revenue growth guidance remains the same at 6.8%. As already indicated, we expect to generate accelerated revenue growth in H2 as already visible in our quarter 3 constant currency revenue growth of 8.5%. This is a clear acceleration compared to H1, where constant currency revenue growth stood slightly below the range at 5.5%. We now expect gross margin for fiscal '26 to be around 51% focus on deliver mid-teens EBITDA growth, up from the previous low teens guidance.

Our PAT growth will be above 50%, but from a higher base of EUR 234 million, excluding Dealz, and our unlevered free cash flow is expected to be EUR 300 million versus previous EUR 250 million. Our net new store guidance remains the same at 250 stores. We will be updating our midterm guidance and guidance for fiscal '27 at our fiscal '26 year-end results presentation in December. With that, let me hand back to Stephan.

Thank you, Willem. Let me now quickly summarize on Slide 15 before we open up to your questions. I won't cover these points in detail. I think we've addressed and covered them especially throughout the presentation. Instead, I want to focus on the strong execution the team has demonstrated, transforming this group from a multi-brand disjointed proposition to a simplified business with a clear growth trajectory and significantly improved financial position, all of which has been achieved in a very short time period.

As we move forward as a pure-play Pepco, I'm hugely excited by our growth prospects. We have achieved a lot already, but there is more ahead as we continue our disciplined expansion in both new and existing geographies. We remain strongly focused on delivering sustainable, profitable growth and, of course, on providing enhanced returns to our shareholders. So with that, let me now hand over to your questions. Thank you very much.

Thank you very much, Mr. Borchert.

[Operator Instructions] Our first question this morning will come from Michael Jacks of Bank of America.

Congrats on a strong quarter and thank you for the presentation. My questions relate mainly to sourcing.

Firstly, could you please give us a sense for where shipping contracts settled in percentage terms year-over-year? That's my first question.

Second question, could you please elaborate some more on the sourcing tailwinds, specifically on the relative contributions from favorable trading terms in China versus structural improvements that you've made to your sourcing operation? And my final question, are there any seasonal factors in Q4 that typically weigh on gross margin relative to Q3?

Yes. Thank you very much for your great questions. Look, we have not disclosed the shipping percentage in that. But what I think I can very comfortably say here today is the following. So first of all, yes, I think we are not the only one stating that the situation in China is quite -- I mean, difficult, but interesting at the same time.

So suppliers do have lots of spare capacity. And I think we continue to see, on the one hand, opportunities in sourcing and our gross profit margin expansion to an extent also is based on sourcing efficiencies that we continue to increase.

However, going forward, it will be seen how -- which strategic role China has and can play in that respect. So we are continuously looking at a balanced sourcing portfolio for us, particularly for the general merchandise categories.

But overall, we are less, we are very comfortable actually with the sourcing situation in terms of intake margin from the China market situation. Shipping, as you know, we do have quite long-term contracts. Again, I cannot disclose the number, but we are very, very pleased with our closed contract for next year. So we are contracted for next year. And again, without disclosing the details here, but we have -- we feel we have achieved a very favorable solution here. Maybe on the margins.

Yes. So for me, you also asked on the gross margin delivery quarter 4 over quarter 3. We have guided on a gross margin around 51%, and I want to be very clear and upfront about that. That's, as you are used from us, slightly prudent. Around can also mean above.

I just want to clarify that upfront because I think it's a key metric. Where we are very happy with our gross margin momentum at this point in time. We've been assisted by stock freshness in our stores, which are at historically very high levels as we indicated already in the H1 results presentation. That trend continued.

We've seen excellent sell-through in June and May, which helped us continue this very favorable trend on stock freshness. Intake margins are well managed and under control, reflecting the trends that Stephan has already highlighted just before.

So we are quite confident on our gross margin delivery trajectory. In particular, also as we are cementing a number of the key inputs, as Stephan just hinted on shipping, we are cementing our favorable rates in a new contract which was a significant step down from historically higher rates. So momentum is sustained. We're having good results on our ForEx hedging, again, well into 2027. We see ex works price in China and other key supplier markets also holding and being favorable to us.

So we are confident on gross margin at this point in time for the remainder of the year, as we highlighted in our guidance. So that's gross margin. So seasonal factors, I wouldn't overplay them, but I also would not encourage you to just simply extrapolate. We guide on around 51%. It's prudent. There may be some upside, but the key metric for you to focus on is the mid-teens EBITDA growth where we are clearly committing to that number. Did I answer?

Yes, very clearly. Thank you.

Now we go to Matt Clements of Barclays.

Two, if I can. The first is on Western Europe. The brand and the offer seems to be resonating very well, particularly in Spain and Italy, obviously. Can you give a bit of color about who you're taking share from and how your stores are performing when there's overlap with some of the larger integrated banners like Primark, [indiscernible], Action? That's question number one.

The second question would be on digital. It's been 2 months since we last heard from you. You obviously had very encouraging early performance in Poland with the app. How has scale and engagement evolved in Poland? And when will we see the rollout into other markets begin?

Thank you, Matt. Great questions. Let me go to Western Europe first. So you asked on overlap. So look, first of all, I think one thing is very clear. Our value proposition really, I mean, resonates extremely well. I think above our expectations really with the Western European consumers.

So that -- and this is really across the board in both categories. As you know, we operate in 2 main categories. So it's really in apparel and in general merchandise where we see those strong performances and the strong acceptance of consumers.

The overlap is not of concern really for us. We have -- as you know, we operate in many areas. We have 3 segments in those markets. We, at the moment, do not have any issue really on that.

We do measure cannibalization in CEE markets, particularly, but that is not of a big concern for us. Also because we are, as you know, able to operate in much smaller catchment areas. And that is where the focus for us lies really. And you won't find larger boxes, particularly integrated players in those areas.

So very, very pleased with Western Europe going forward. Digital, yes, we haven't disclosed numbers this time. We will talk about this in more detail in December. But I can reassure you, we continue to scale up, and we particularly continue to see stronger engagement levels.

So the share of sales that goes through the app and the -- either the Zwipe or the coupons is continuously and strongly increasing and is above benchmark at the moment. So we are very pleased with that, but we will discuss that a bit more in detail in December. And we are planning a rollout. We haven't guided which country yet, but we definitely will accelerate our rollout of the systems into countries where competitive pressure is high. So you can imagine it's the adjacent markets, could be Czech Republic, could be others.

But we wanted to give ourselves the time for the proof of concept in Poland. setting up further commercial infrastructure around that, refine some of the technologies. Remember, we've just launched it really. And once that's all done, we will accelerate rollout because it's a super scalable, very modern digital infrastructure, so which enables us to do that fast.

[Operator Instructions] We'll now go to Michal Potyra of UBS.

Congrats on the strong numbers. I have 2 follow-up questions, please. So the first one, continuing on Western Europe. If you could maybe provide some color on the EBITDA level profitability in Western Europe and the gap to CEE? And do you believe you can even close that gap? So that's the first question.

And the second, a very general question, but maybe you could comment a little bit on the consumer health and demand trends on -- across your key markets.

Okay. Michal, let me start with the first question on Western Europe. Clearly, Western Europe has a lot of potential as we still have infrastructure, which is not commensurate with the forward-looking revenue potential that we see in that market.

I clearly alluded to the distribution network that we already for Iberia explained. We opened Guadalajara about now 1.5 years ago. That has helped us bring distribution costs down, but it's operating still below full scale. Therefore, there's more margin potential -- EBITDA margin potential in Spain as we start to see fixed cost attrition and benefits from scale.

The same in Italy, where we continue to ship products from CEE into Italy. And you can imagine that, that is not the most efficient way to serve a big market where we have significant expansion plans. We disclosed in the half year that we are very confident on our EBITDA progression in Western Europe. We provided, I think, some information in the slides. There is still a gap, but it's closing. And with all the actions and scale advantages that we foresee in Western Europe building up over the coming years as we accelerate, we expect Western Europe to be at group levels from a financial contribution point of view.

Yes. And I'll take up the second one, Michal, on consumer. And maybe just to add to what Willem said, we've discussed in the last call, our geographic expansion and clearly said we want to focus on the existing markets because the operating leverage potential is so much higher with a now liberated highly simplified structure at scale. And that is why we are confident on the EBITDA development in Western Europe.

On the consumer, yes, it's a mixed bag, right? I mean, on the macros, we see obviously positive developments, so inflation coming down or stabilizing. We believe here at Pepco that the disposable income that is available for retail is still much there, but consumers seem to become -- the sentiment numbers are negative. They are difficult and it varies. CEE is a bit better than certain parts of Western Europe, particularly Germany and France. But overall, it really only says that 2 things.

One is there is still a wallet to gain from retailers -- for retailers from consumers. But consumers become and have become after so many years of distress, if you want, they have become more selective, extremely selective. So they are looking for real values. They're looking honestly for honesty and truth in the product offering, whether that is quality, whether that is price, pricing strategy. And we feel perfectly positioned in this.

So we see more customers coming to us. We see volumes growing, but we also see AUP growing in certain categories. And it shows us that we are able to attract a maybe lower mid-class segment that is trading down to us as well. So therefore, I think going forward, we are, as Pepco at least, quite confident with the consumer sentiment here in Europe for us. I hope that did answer your question.

Maybe if I may have one follow-up question on competition. So we have seen those EUR 3 surcharges implemented for cross-border online trade in Europe, mostly coming from Chinese competitors. And we have seen actually players like Temu adding that additional fee at the checkout. Are you expecting any kind of incremental increase in the demand in your stores on the back of this? Or it wasn't that disruptive to you so far?

Yes. I think -- no, look, I think we had this question on the other side before several times, do we see massive negative impact? We haven't really seen it before. We know there is overlap in our customer shopping behavior, particularly with Temu, less so with Shein, but Temu. So -- but it hasn't really had a negative impact on visiting frequency and basket of those customers who also buy there. So now in reverse, that doesn't affect us either so much.

I think we do really follow whether it is Action or Temu or others, we are following a very different shopping journey and a very different value proposition with a very curated to a large extent, not so discretionary assortment and product offer at really, really, really price-leading levels. And I think, therefore, we are not so impacted. But of course, we are looking at it very, very closely. And those are very large players. And one is, of course, passing this on to customers.

I don't think that serves them well to do so. But we, of course, know that also in the background, there is a lot of dynamics around setting up local seller models, local distribution models and so on. So we are continuously watching it and seeing what is happening there. But frankly, we neither have had a negative -- strong negative impact nor do we probably have now a positive impact on that.

As we have no further audio questions at this time, [Selena] , I will turn the call over to you for any questions submitted through the webcast. Thank you.

Thanks. So we've got some questions from the webcast. First question from Harry at Vergent AM. How much is the impact on FX on margins? Do you see any pressure to margins in FY '27 from FX? And what is the longer-term ceiling on GPM?

I have to disappoint you, Harry here. We're not going to give any guidance on fiscal '27 and midterm and long-term guidance, which we will provide to the markets in December.

I have to be firm on that. Look, ForEx has been a tailwind, as we explained through the year, so end of last year and half year, we were very clear about ForEx, but it's one of many factors. And so we comment on that. We have supply chain efficiencies. We have fixed cost distribution benefits.

We have ex-factory prices that were very favorable in local currency as well. And so there's a whole string of measures that we've taken, which have helped us sustain this very strong gross margin performance. We're now focusing on closing the year, and we will be providing you with more details on fiscal '27 and beyond in December. So I know it doesn't answer your question, and I -- but this is what I can share with you.

Next question is from Jacob at AZT. What does the current purchasing procurement process at Dealz look like? And does Pepco support the company in this regard?

Okay. I will take that one. We already had prepared Dealz to be virtually fully stand-alone in the run-up to the decision to separate ourselves from Dealz. So Dealz has minimal relationship -- ongoing relationships with Pepco going forward.

There are a few small items that have been taken care of in a TSA with a limited duration. But for all practical purposes, Modella has been given a fully functioning self-standing company and they can hit the ground running.

Thank you. Another one from Jacob is, are further write-downs planned in connection with the sale of Dealz? If so, in what amount?

We disclosed -- let me think -- first of all, Dealz will be -- was an asset held for sale in our half year accounts. We will now deconsolidate Dealz post the completion of the transaction, which is imminent.

As a result, there will be a modest negative impact in the accounts of EUR 22 million, which will be reflected in our full year accounts as an impact on discontinued operation and it clearly also will impact our net equity position at year-end.

But it's a minor amount in the relationship of our total balance sheet and the performance of Pepco, which by far outweighs this negative EUR 20 million charge. I want to stress as well that the only ongoing support we will be providing to Dealz, as I explained in my speech, is a GBP 20 million working capital facility, which will be asset-backed and therefore, will be held at full value in our accounts.

Thank you. Another one from [indiscernible] -- sorry, first one from [indiscernible] at NPT. What is the total exposure to Dealz and Poundland, including inventories, loans, et cetera?

I just I'll just answer the first one on Dealz. The ongoing exposure is limited to the GBP 20 million working capital facility, of which 0 has been drawn, and it will be asset-backed. So in that sense, we have an asset-backed facility there. With Poundland, we, as again disclosed in the past, we have a working capital facility up to GBP 30 million, which runs until mid or August 2027.

And if and when there is news to report that, we will do that. But at this point in time, we have been occasionally and time to time in providing support under the working capital facility, which Poundland has been paying back regularly as well. So no major exposure there at this point in time.

Next one is from Vladimir at Kepler Cheuvreux -- in your 5.4% like-for-like sales growth in Q3, what was the split between price mix and volume effect?

I understand the interest in this breakdown, but we've never provided that, and we'll also not do that at this point in time. It's a healthy balance.

It varies from quarter-to-quarter, reflecting competitive intensity, pricing and other mechanism that we use as a retailer to drive optimal sales to our network. So it's a mix, as rightly commented, it's a mix between price mix and volume. The one thing I can say is that we've -- with regards to mix, we've had some positive mix upgrades in our portfolio as in particular, a number of our -- as our efforts to upgrade our assortment have resonated with buyers. But still, it's a very healthy mix between volume, mix and price.

It's probably important to state here because Stephan, we have a very, very clear commitment to our everyday low price strategy. So the one thing we can say is there is no ticket price increases really influencing our like-for-likes overall. As Willem alluded on, we see an interesting -- not clear, but slight development in AUPs up. So that shows us clearly there is a trading down from middle class into our organization with our value proposition with some higher-priced products. So therefore, a very healthy mix to reconfirm of volume and [indiscernible].

Good question, here. I hope that we did answer it to you. But where we have price, it's mostly mix. We do not increase ticket prices, and that is very visible if you visit our stores in countries over a long period of time, and we are really committed to our value proposition to our customers.

Thank you. I think we might have another question from the conference call. So I'll hand back over to George.

Yes, we do have a follow-up question. It is coming from Michal Potrya of UBS.

It's really on the buyback because once the buyback is completed, the company's equity position will become negative. And I'm just wondering if you could comment, are there any practical constraints this could create with respect to financing, debt covenants or perhaps future capital returns to shareholders?

Michal, thank you very much for this question. I know it's bouncing in the background, and thanks for making it transparent. Look, negative consolidated equity is all the result of the historical journey with Poundland.

It doesn't say anything about the inherent and underlying strength of our Pepco proposition, which is extremely strong, but it's just an accounting reflection of historical goodwill that we had to write off as we exited both Poundland and Dealz. Our banking covenants do not have a reference to equity.

They're all built on normal debt metrics, where we are very, very solidly on the safe side of any of the metrics that one can look at. And we have not been receiving any indication of concern by any of our banks on this accounting metric. With regards to constraints on further distributions to shareholders, -- this is not a constraint as we have ample funding and equity at the top level of the company, which is the technical constraint under Dutch governance. So therefore, there is no issue. And we're projecting equity to rise significantly on the back of both our quarter 4 performance and the guidance for next year, which we'll be providing in December. And so this is a -- for now a temporary situation, but all our debt metrics are extremely strong and also the rating agencies we have been in contact, understand the true and underlying economics of our business model. I hope, Michal, that answers your question.

It does.

As we have no further questions, Mr. Borchert, I'll turn the call back over to you for any additional closing remarks. Thank you.

Yes. I'll make it short. So thank you very much for calling in. Thank you very much for your interest and your continued support. It's been a pleasure talking to you today on another very, very good and for us, pleasant Q3 results. Looking forward to discuss with you full year results and guidance matters in December. And for now, I wish you a good day. Thank you very much.

Hello, and welcome to Pepco Group's results presentation. Following today's presentation, there will be a Q&A session. [Operator Instructions]

I would now like to hand over the call to Stephan Borchert, Pepco Group's CEO. Please go ahead.

Thank you, Christina. Good morning, everyone, and welcome to our Financial Year '26 Half Year Results presentation. I'm pleased to announce a very strong set of results this morning as we have continued to make huge strides in line with our strategic plan. Joining me on the call this morning are Willem Eelman; Pepco Group CFO, who I'm sure you're all very familiar with by now and Hugo van Santen; our Pepco CFO.

I'll first run you through a couple of highlights, followed by a detailed look at the progress we've made in the first 6 months of this financial year against each of our strategic pillars before handing over to Willem and Hugo for the financial review. I'll then provide a quick summary at the end as well as an overview of current trading before we open up for discussions and questions.

With that, let's begin and turning to Slide 3, please. So there are many achievements worth highlighting from this half, but a clear milestone is the consistent like-for-like performance we have delivered in Pepco. Now on to our sixth consecutive quarter of positive growth. To deliver this in the face of such an uncertain macro and geopolitical environment is a real testament to our strategy and the hard work of our team in stores and headquarters. This, in turn, has enabled strong financial delivery with revenue up 5% and EBITDA up 17.5%, driven by our strong gross margin expansion of 250 basis points and even stronger profit after tax performance of plus 52%.

Our stores in Western Europe continued to outperform, delivering double-digit like-for-like growth, excluding FMCG. In Iberia, our converted Pepco Plus stores have delivered strong like-for-like and store EBITDA margin improvements, which I will touch on in more detail later in the slides. This positive development after 12 months of hard work has for us now created an inflection point, which provides us with the confidence to accelerate our rollout in Western Europe. We now expect to double our store counts by financial year 2030, which we are really excited about. The launch of our mobile app and Pepco Club loyalty program in Poland was a big success with results tracking ahead of our initial expectations. And we have made good progress in line with our 250 net new store opening guidance, opening 62 net new stores in H1, though it's worth remembering this figure is inhibited by our 28 store closures in Germany.

As previously announced, we are opening Pepco stores in North Macedonia, our 19th market for the first time in June this year. What's more? We have today announced a pilot entry of Pepco into Ukraine. This is a huge market with vast potential for Pepco. So I look forward to talking to you more about this later.

Lastly, we made quick progress with our planned EUR 200 million share buyback, which we completed last week, 12 to 18 months ahead of our schedule. Today, we announced an additional one-off pro rata tender buyback of up to EUR 400 million, which we intend to complete in H2, delivering further returns to shareholders.

Turning now to the next slide. I'm sure you all have seen before our 5 strategic pillars, which built a framework for our business progress. With the first pillar of our strategic framework nearly complete, we are focused on the remaining 4 pillars to drive the growth of our business. And therefore, I wanted to share with you a little more insight on how we internally think about and categorize the future growth potential of Pepco.

The easiest way to distill it down is into 3 core regional growth engines. North CEE, South CEE and Western Europe, each of which has their own specific attributes and role to play in our future growth. I'll touch on the dynamics of each region in the next slide.

These growth engines are supported by the work we have done and continue to do on our success levers regarding customer proposition and operating model that are allowing us to grow sustainably and profitably.

On to Slide 5. Here, you can see a quick overview of our 3 regions, which given this is the first time we are talking about our geographic split this way, I hope you will find helpful in contextualizing the profile of each. For North CEE, this is clearly a region we are well established in. We have a very high penetration in some of the key markets in this region like Poland. You can think of North CEE as a steady profit center delivering low single-digit like-for-likes and roughly 65 net new stores this year. For South CEE, you can expect higher store growth but also profit growth resulting in mid-single-digit like-for-like growth and roughly 110 net new stores in financial '26.

And lastly, Western Europe, which now presents a sizable growth opportunity for Pepco, particularly in light of the beneficial market conditions in the region. Here we expect to be able to deliver mid- to high single-digit like-for-like growth and approximately 75 net new stores this financial year which will predominantly be in Iberia and Italy.

With that in mind, let me now turn back to our 5 strategic pillars and update you on our progress against each one. You start on Slide 7. Pillar one of our strategy is all about simplification and streamlining the group portfolio. With Poundland sold at the FMCG exit in Pepco successfully completed, the only remaining piece of this is pillar is Dealz. Dealz experienced challenging trading in H1 of this year, with like-for-like revenue growth down by 8.3%. This weaker trading in part reflects a strong comparative quarter in the prior year, as well as the impact from the current transition period Dealz is in.

We remain firmly focused on its separation, and I'm pleased to report we are in discussions with several interested parties at the moment. We remain confident to separate Dealz by the end of this financial year.

On to Slide 8. As we near the completion of the Dealz investment, I wanted to take a moment to draw attention to the differing financial profiles of Pepco and Dealz and highlight the benefit this divestment will bring to the group. As you can see, Dealz is only a small portion of group revenue, less than 7% and have delivered consistently weak like-for-likes.

In addition, as a result of its FMCG focus, it has naturally low margins, which have continued to deteriorate. This is in contrast to Pepco, where we have been able to drive significant margin improvement over the past 2 to 3 years. So although the Dealz exit will slightly impact our top line revenue figure, it will significantly improve our profitability as well as enabling greater strategic focus with the full attention of the group on Pepco. We will provide more detailed disclosure similar to the pro forma disclosure we provided on Poundland in September last year at the appropriate time. But I hope in the meantime, this helps to contextualize the exit and provides more clarity on the upside opportunity for the group.

Go to Slide 9. On to Pillar 2, top line growth through measured expansion in CEE. Over on Slide 10. Now on Slide 10. First, let us look at North CEE, which covers Poland, Czechia, Hungary, Estonia, Lithuania, Latvia, Slovakia. Versus H1 financial year '24, North CEE has delivered roughly 7% revenue growth despite a period of strong like-for-like underperformance during financial year '24 and early '25. In H1 financial year '26, North CEE delivered 2.5% like-for-like revenue growth, including FMCG. The significant majority of North CEE revenue is driven by Poland, which continued to perform well this half with like-for-like growth of 2.9%, including FMCG and revenue growth of 4.5%. Profitability in Poland also continues to improve with its store EBITDA margin up 110 bps versus H1 '25.

Poland is now showing positive like-for-like performance for 4 consecutive quarters. We are very pleased with the outcome of our turnaround efforts. We will continue investing further into our Poland business, amongst others, in store renovations and relocations. Let's have a look at an example of this on the next slide.

On Slide 11, in Poland, we have a number of undersized stores with roughly 250 square meters of sales space, which are significantly below our Pepco average of 450 to 500 square meter. These store also tends to be in locations with reduced footfall with transport links or mismatched co-located stores, all of which impacts like-for-like performance. In H1, we completed 19 store locations in Poland by relocating the store to a larger site in a more modern retail environment, as shown in the image on the right. We are are to display the full strength of the Pepco customer value proposition.

On average, our relocated stores in Poland are delivering a 9% sales uplift. We continue to accelerate our store renovation and relocation activities in Poland as we speak.

Now turning to Slide 12. Another driver of stronger engagement in our Poland and North CEE market is our upgraded marketing campaigns. This year, for the first time, we started running marketing campaigns featuring influential celebrities. Our first campaign was with Malgorzata Socha, who many of our Polish analysts and investors may be familiar with. She is a popular Polish actress and model with a strong social media following. We have revamped significant parts of our ladies wear range, and through this campaign, we are seeking to strengthen the reputation of Pepco as a go-to destination for desirable womenswear at market-leading prices. The campaign initially run in Poland and then went live in stores across all CEE markets. We have seen great results with a sell-through rate of 73%. On the back of these strong results, we have just recently launched our second campaign, and we'll continue to run the celebrity-led campaigns through the year.

Next, on Slide 13. We have South CEE, which, as a reminder, is Romania, Serbia, Bulgaria, Croatia Bosnia and Herzegovina, North Macedonia and Slovenia. South CEE has delivered strong revenue growth of 25% which is H1 fiscal year '24 and H1 financial year '26 as well as strong like-for-like performance of plus 4.3% excluding FMCG this half.

As with North CEE, one country, in this case, Romania, delivers the bulk of South CEE revenue. However, this is diluting over time with the growth of other regions and the addition of new geographies like North Macedonia, where we will open our first Pepco store in June this year.

If you look at Slide 14, as I mentioned at the start of this presentation, we are very excited to announce our plans to enter Ukraine this year. Ukraine presents a great opportunity for Pepco with many complementary attributes that will support our success in the region. Firstly, we already have excellent brand awareness in Ukraine as a result of the 4 million plus Ukrainian people who took refuge in Poland as well as the customers from Ukraine who regularly shop in Poland and at Pepco.

There is also relatively limited competition for Pepco in the region. So our internal market assessments have created good first conviction that our value proposition will resonate well with Ukrainian customers. The teams have been working hard to get us ready. We plan to go live with an initial couple of stores up to 10 later this year. These stores will be largely located in cities closer to the Polish border like the Lviv and Kyiv. It is, of course, too early to say, but given the size of the Ukrainian market and the potential for the Pepco offering, it may open up a huge opportunity for our business.

Given its scale, Ukraine has the potential to be a fourth growth engine alongside North CEE, South CEE and Western Europe over time. We will, of course, carefully evaluate our performance in light of the continued conflict as well as ensure we prioritize the safety and well-being of our colleagues at all times.

Now on to Western Europe on Slide 16. In H1, we delivered like-for-like revenue growth of 13.5%, excluding FMCG in Western Europe with clothing and GM, general merchandise, both performing strongly. This like-for-like growth has been supported by the success of our converted Pepco Plus stores, which are performing extremely well. I will touch on this more shortly.

Our H1 reported net store opening number is impacted by the closure of 28 of our 64 stores in Germany, as previously guided. It's important to remark that the remaining 36 stores in Germany are performing very well delivering double-digit like-for-like growth. This development makes us cautiously but increasingly confident that our concept resonates well also with the German consumer and that there may be a strong opportunity for further growth of Pepco also in this market.

Given we have successfully achieved our proof of concept in Iberia and Italy, we have today announced that we will be accelerating our store openings in Western Europe from financial year '27 onwards by at least 600 new stores over a period of 4 years. This will enable us to double our current store count in the region by financial year 2030. But more on that later.

Turning now to Slide 17. When we presented the financial year '25 results, we provided you with detailed information on our converted Pepco Plus stores, their performance and improvement we expect in the future. So I wanted to provide you with a further update on these stores today. As a quick reminder, we converted 117 Pepco Plus stores to regular Pepco stores to facilitate Pepco's exit of FMCG, largely completed between March and August 2025.

We now have like-for-like data on how the earliest converted stores are performing after lapping their 1-year conversion date. We have 5 stores that were converted earlier in January '25, which gives us roughly 11 clean weeks of like-for-like trading before the end of H1. We are strongly encouraged by the fact that these wave 1 stores delivered like-for-like performance of plus-12.2% ahead of our regular stores, which delivered like-for-like growth of plus-10.7%.

What's more? Since the half year end, we have lapped the conversion date of many more stores. Like-for-like data for the first 38 stores that have now lapped the conversion date was plus-17.8% to the beginning of May. The improved performance gives us confidence in our full year revenue growth guidance which was, of course, impacted most severely in H1 due to the lingering FMCG impact. This effect unwinds during H2.

Now looking at Slide 18. Equally encouraging, and as as we have discussed that previously very often, is the improvement in store EBITDA margin for these converted stores, which you can see here on Slide 18. At the end of financial year '25, the store EBITDA margin for the 117 converted stores was 7.4%, a drag on Western Europe performance. But with a full half of 0 FMCG impact, this has now improved to 19.7%, in line with our regular stores in Iberia and well ahead of our prior target of 14.4%. What's more? Strategic initiatives we have run in the region, combined with strong focus on cost reduction, has seen the store EBITDA margin in our regular stores increased by 12.7% points versus financial year '24.

Now on to Slide 19. Again, these are charts you may remember from our full year '25 results presentation. Here, you can see that all our converted stores are now profitable and delivering a material improvement versus financial year '25 and '24. And on the right-hand side, you can see that store EBITDA in both Iberia and Italy continues to trend closer towards group levels.

Now on Slide 20. Here we will discuss our new store performance. We opened 22 new stores in Iberia and Italy in the first half of this year and as well as the strong performance from these openings, I really want to draw your attention to the improvement with the stores opened in financial year '25 across all metrics. This is a testament to our ongoing work across the business to improve our customer proposition strategy and also operating model.

On to Slide 21. The closure of 28 of our stores in Germany have significantly improved our performance in the region. The remaining 36 stores are delivering double-digit like-for-like growth and the store EBITDA margin in Germany is up 510 bps versus H1 '25.

We continue to believe there is a sizable opportunity in Germany with the potential for over 2,000 Pepco stores. Given the performance of our current stores, we have decided to trial several more new stores in H2 of this year. Remember, the stores we previously closed were poorly chosen locations that have been selected in a rush rollout under prior management. It was no reflection of the true potential of our concept in this market.

We will be disciplined in our approach to new locations. As with Iberia and Italy, we have set ourselves internal targets for a proof-of-concept. Upon successful achievements of these targets, we will review our next steps.

Lastly, on Slide 22, I'm excited to share with you the more concrete outline of our expansion plans for Western Europe. I've been convinced of the opportunity for Pepco in Western Europe since very early into my role as Pepco Group CEO. However, aware of historic missteps and improvement work needed across the business, we decided to take some time and a structured approach to fully prove the economics in Western Europe were viable before accelerating our expansion to take advantage of the significant growth opportunities in the region represents -- that the region represents. There is an at least 1,000 store whitespace opportunity in Iberia and Italy alone, without considering other European geographies.

Having been through the last few slides, I hope you will agree with me that the economics here are proven and as a result, Pepco now has the justification to move forward with an accelerated store expansion in the region. We now plan to double our store count in Western Europe by financial year 2030, from 586 stores today by adding at least 600 new stores during this period. These stores will be focused on locations in Spain, Portugal and Italy, but also in some of our other existing Western Europe markets depending on opportunity.

Please note that this accelerated expansion is planned to commence from financial year '27 and will not have an impact on our financial year '26 guidance. Any possible impact on our midterm guidance will be updated at our full year '26 results announcement.

Turning now to Pillar 4. This is Slide 23. And going on directly to Slide 24. I wanted to start with a quick reminder of the Pepco customer proposition, as I think there are several aspects that are often easily overlooked. A key attribute of the Pepco proposition is our close proximity store state making it easy and convenient for customers to shop with us. We remain focused on maintaining market-leading prices, which I will cover more shortly and hold #1 price positions in all our core markets. However, a common misperception is that leading prices means reduced quality. That is not the case for Pepco.

We are focused on providing strong value to customers with our in-house designs and curated product sets. This half, we have taken additional efforts to improve our product lines, particularly in baby and kids wear and improved product freshness to drive newness in stores. This has been particularly effective in categories like toys, where we are seeing strong traction as a result of increasing the refresh rate of the category.

Lastly, supporting all of these areas is our effort in digital which is enabling a very different level of customer understanding as well as targeted and personalized engagement with them, leading to increased footfall and sales growth in store.

Turning over to Slide 25. The team recently completed a price analysis of roughly 2,500 products comparing similar items that are crucially of comparable quality across our relevant competitors. This piece of work has clearly confirmed the Pepco is a price leader and remain the price leader across all our markets. Pepco has been indexed to 100 for comparative purposes and the 2 indexes or average of peer prices.

Our market-leading prices are a key part of our customer value proposition, and we remain highly focused on maintaining this position across all of our markets.

On Slide 26, you see that as well as price we are equally focused on product quality. As a clearly differentiating element versus many of our competitors, our customers expect great value items from Pepco, meaning best quality at lowest prices. Our internal quality and garment technology team recently conducted GSM analysis, where GSM stands for grams per square meter for cotton and is the most impartial method of measuring the quality of clothing items. I'm pleased to say that against 2 of our local Polish peers, Pepco's results showed a 10% high quality level in both kids and baby wear. In adult wear our quality levels are more comparable to peers, but we're also working to improve this. The focus on good quality paired with unbeatable prices is key to driving further brand trust, customer loyalty, and ultimately, revenue.

If you now turn to Slide 27, mobile app. We were very excited to launch our mobile loyalty app in February this year. In the first week since launch, we attracted 1.1 million app downloads and 530,000 Pepco Club customers. What's really great to see is that Pepco Club customers are spending on average twice as much with us as non-Club customers. By using different types of offers and promotion mechanisms in the app, we were able to drive engagement as well as incremental store visits and purchases.

Since the end of the half, the level of app download has continued strongly, and as at the 15th of May, we reached almost 2 million downloads and just over 1 million Club customers. Encouragingly, conversion from registration to Club customers are improving over time.

If you now look at Slide 28, in H1, we began using AI to assist in our marketing efforts, in particular, with the production of our photography assets. As a result, this enabled us to produce 9x more photos than we produce in H1 last year, which is especially valuable having launched our new Pepco customer website and new mobile app, which houses many more of our products than we have ever shown online before.

We began initially with single product shots and are now confidently using AI to generate complex images featuring multiple Pepco products as well as AI-generated models wearing our clothing. Many of which are used throughout this slide deck as well as on this side -- and this slide, apologies. This, combined with broader changes to our product photography production has enabled us to already realize EUR 1 million savings in our photography costs in H1 fiscal year '26.

Lastly, turning now to Pillar 5 and the progress we have made on upgrading our operating platform. First, with some highlights on Slide 30. Just after the half year -- and sorry, just after the half year-end, we announced the completion of our DC partnership with DHL. We had previously moved the management of 4 out of 5 of our DCs over to DHL, and in April, we moved over our Bucuresti DC. DHL are an expert in this field and their management will enable us and our DCs to run more effectively and efficiently. We are not currently accounting for any financial benefit, but we do expect there will be some recognizable cost savings delivered over time.

As we continue to grow our store base in Iberia and expand the utilization of our Spanish DC, we're achieving further cost savings. In H1, distribution costs in Iberia were down 240 basis points. The DC is also supporting like-for-likes in the region with improved, faster and more accurate access to stock.

Across Pepco, we have continued to optimize our processes and implement technology upgrades, particularly in our supply chain, which is allowing us to keep better track of our stock and manage volumes more effectively. Lastly, our data lake is now up and running, which empowers and integrates our CRM. Overall, our operating platform is in a much stronger position, which is further illustrated on Slide 31.

So over on Slide 31. We show that the improvements we are making to our operating platform not only put us in a stronger position for growth, but they also build greater resilience into our business model and supply chain. PGS, our Asian sourcing entity, is now fully integrated with Pepco and having our own direct sourcing arm is a key strategic advantage for our business.

We source 92% of our own label products through PGS enabling us to avoid expensive third-party agents and be in full control of our high product quality levels. The quality of our supplier relationships, coupled with long-term shipping contracts and our integrated supply chain puts us in a strong position which has been well demonstrated through the recent supply chain disruptions caused by the Iran war.

I'm very pleased to say that thanks to earlier steps we have taken to modify our shipping routes and negotiated competitive rates with a diverse supplier base, we are very largely unaffected by the crisis. 95% of our goods, thankfully, are already traveling around the Cape of Good Hope and other than a small impact from increased fuel prices, we remained in a very robust position throughout with almost 0 delays.

Lastly, we have taken significant steps to improve stock freshness and reduce our aged inventory, as you can see in the charts on the right-hand side of the slide. Aged inventory is down 15 percentage points versus financial year '24. And both freshness and inventory are on track to be at our best levels since financial year '22 by year-end.

I hope this has given you a good overview of the strategic progress made in the first half of this year. I will now hand over to Willem and Hugo for the financial review before coming back at the end to provide an update on our current trading and outlook before we take your questions. Now, Willem, over to you.

Thank you. On Slide 32, please. Thank you, Stephan, and good morning, everyone. I'm looking forward to taking you through the strong set of results we delivered in the first half of fiscal '26. As Stephan mentioned, joining us on the call today is Hugo van Santen, who is the CFO of Pepco, our core and core of the business.

I'll begin by covering a few quick highlights and then over to Hugo, who will take you through some of the specifics on Pepco's performance. I'll then cover the remainder of our first half financials as well as details on our refinancing, capital allocation framework and fiscal year '26 guidance before handing back to Stephan.

Turning to Slide 33. I won't go through each of these in turn, but there are a few highlights I would like to call out. We delivered 250 basis points of gross margin improvement versus H1 '25, which was driven by a very strong performance in Pepco, offset slightly by a weakening margin in Dealz. Hugo will provide more details on this later with a focus on new Pepco, the relevant entity going forward.

This gross margin improvement translated into underlying EBITDA growth of 17.5% to EUR 516 million. We delivered even stronger EBIT growth of 53%, which reflects our top line growth and gross margin expansion, combined with a change to our depreciation policy to better reflect our actual store lease lengths, which had a beneficial impact. Again, later, I will go into more details on this change.

Our profit after tax growth was equally strong at 52%, taking us to EUR 198 million. We finished the first half with unlevered free cash flow of EUR 181 million, which was up over 250% on H1 fiscal '25, driven by strong operating cash conversion of 78% combined with a significant improvement in working capital outflow. Lastly, underlying EPS growth was up 56.6% at the end of H1, obviously, reflecting the strong bank performance, profit after tax but also reflecting the impact on the share count of the share buyback program, which was ongoing during the half.

At the end of H1 fiscal '26, we were still executing the final tranche of the 200 million share buyback program, but this was completed last week.

Over to Slide 34. Here you see the breakdown of our like-for-likes by banner and by Pepco region. We're showing these today in line with Stephan's earlier explanation of how we think about the growth profile of the business. So you will see North and South CEE rather than Poland and rest of CEE, but the details for Polish like-for-likes are available in our release published earlier this morning.

We delivered group like-for-like growth, excluding FMCG of 3.6%, which was driven by the strong 4.6% growth in Pepco's like-for-likes, offset by 8.3% like-for-like decline in Dealz which experienced a challenging trading period while also annualized at a tough comparative period. We achieved strong like-for-like growth in both North and South CEE of 2.4% and 4.3%, respectively, and even stronger like-for-like growth in Western Europe of 13.5%, all these, excluding FMCG.

These like-for-likes are a testament to the strategic initiatives we're running across the business to ensure we offer quality products across our categories that customers love at great value prices, and that encourage them to visit our stores again and again.

I will now hand over to Hugo, who has been charge of Pepco since early -- the start of 2025, and he will take you through the Pepco's performance in a little more detail. Let me remind you that Hugo focus on Pepco, excluding Dealz, unless it is called out specifically as group, which would include Dealz. Hugo, over to you.

Thank you, Willem, and good morning, everyone. By way of quick introduction, I'm Hugo van Santen, the CFO of Pepco. I joined Pepco almost 18 months ago, and it's been a very exciting period to join the business. I've been really impressed with the strategic delivery the team has achieved in such a short time, and that progress really shows through in today's results.

So let me now turn to Slide 36 for more detail on Pepco's revenue growth. Pepco generated revenue growth of 6% in the first half of financial year '26, driven by solid volume growth of 3.7% and the continued rollout of our new store opening program. We opened 130 new stores in the half. However, as mentioned earlier in the presentation, we closed 28 stores in Germany to optimize our portfolio in the region, which resulted in a higher level of closures and 62 net new stores overall. Of the 62 net new stores, approximately half were in Spain, Italy, Portugal and Greece. Overall, this is in line with our plan for the year, and we remain on track for 250 net new stores by the end of financial year '26.

We remain focused on maintaining our market-leading pricing. So I just want to flag here that the 1% increase in average unit price you see is predominantly driven by sales mixing into higher-value products. For instance, within home and everyday home, higher-value products like candles and bedding each in double-digit growth were drivers of the average unit price increase.

Lastly, I want to highlight that revenue growth in half 1 was impacted by our FMCG exit, which created a growth headwind in the first half of almost 3%. However, this will ease into the second half of the year, standing at 1.2% headwind in the third quarter and only 0.1% headwind in Q4 as we cycled a period where we exited FMCG last year.

Turning now to Slide 37. Here, you can see a quick segmental breakdown of Pepco revenue, which has remained relatively stable half-on-half. By geography, Pepco revenue is 54% in North CEE of which 32% is Poland, 29% South CEE and 17% Western Europe. We delivered strong reported revenue growth across each region, up 5.1% (sic) [ 3.5% ] in North CEE, 7.6% in South CEE and 5.9% in Western Europe. The revenue growth in Western Europe is driven by the 11.8% like-for-like gross contribution, minus 12.4% from the exit of FMCG and a positive 6.5% from net new stores. And specifically, when it comes to the like-for-like growth in Iberia, 133 stores were not converted from Pepco Plus and are therefore not impacted by the impact of an FMCG exit. The like-for-like growth in those stores was 10.7% in half 1.

Like-for-like sales growth for Poland, excluding FMCG, was 3%. Our category split remained relatively stable year-on-year, with a slight increase in general merchandise sales. But overall, we roughly maintained a 50-50 mix of clothing and GM.

Turning now to our like-for-like performance on Slide 38. This top chart sets out the turnaround journey we have been on in Pepco and as a result of the strategic efforts taken across the business, we delivered a sixth consecutive quarter of positive like-for-like growth in Pepco at the end of half 1.

Looking at this half, in particular, we faced a slightly more challenging Q1 with a heavy promotional environment, and issues on stock freshness. However, we can share that Pepco ended the autumn/winter season with a significantly lower remaining stock level of that season compared to last year. This means that the upcoming autumn and winter season will start with a more healthy level of stock freshness compared to this year.

As we entered Q2, trading momentum improved with the launch of new product lines which also increased freshness as well as targeted initiatives on some of our weaker categories like baby. And as you can see from the bottom chart, this growth primarily has been primarily driven by volume, as we focused on maintaining our price leadership position across our markets. As I flagged earlier, the increase in price, you can see in Q2 '26 is the average unit price increase which predominantly results from the mix of items we sold during the quarter.

Turning to Slide 39, where you can see our 2-year like-for-like performance from the start of financial year '25, which has been steadily building quarter-on-quarter to 9.7% in the second quarter of FY '26. This gives you a clear look to our underlying growth trajectory, the traction we are building with customers and our improving momentum.

Slide 40. This slide shows group gross margin expansion of 250 basis points. The improvement was driven in part by mix, showing the benefit of exiting low circa 30% margin FMCG products and growing the sales of a higher circa 50% margin clothing and general merchandise products. As well as improvements in product margin, which includes the positive impact to cost prices, including, for instance, from our never-out-of-stock continuity products with long-term contracts. From production efficiencies delivered by our engineering team and from volatility in the market due to the tariff war where Pepco benefited as we are a loyal customer with long-term relationships with our suppliers.

We also experienced favorable movements in FX for stock purchases in the period. This was slightly offset by an increased level of markdown as we worked to improve stock freshness and inventory clearance. As said on the previous slide, we ended half 1 with significantly lower remaining stock of old seasons, which should benefit us for the next autumn and winter season. The improvement in group gross margin was driven by Pepco which delivered gross margin expansion of 310 basis points, slightly offset by Dealz, which experienced higher levels of markdown in the period to drive footfall after an ERP-related supply chain disruption in November, and a one-off EUR 8 million stock write-off.

Heading towards the full year, we have increased our full year '26 margin guidance slightly from 48.4% of which 40 basis points relates to our FMCG exit to 49.4%, reflecting the strong performance we have achieved to date.

With that, let me now hand back to Willem to continue through the rest of the financial review.

Thank you, Hugo. Turning now to Slide 42. Here, you can see the movements driving our underlying EBITDA, which was up by 17.5% to EUR 516 million. This was driven primarily by our strong gross profit improvement that Hugo already commented on, somewhat offset by stock costs, which were up year-on-year, largely driven due to inflationary pressure on our cost base as well as our increased store count but I will cover this more on the next slide.

Our underlying EBITDA margin grew by 230 bps to 20.9% as we focus on improving EBITDA conversion. We remain focused on our cost base and prioritizing efficiency across our business. Over the coming years, we strongly believe that there is more we can deliver to further reduce costs, particularly in our supply chain.

On to Slide 43, please. Total operating costs were up 5.8% to EUR 710 million. This was largely driven by store operating costs, which were up by 6.9%, primarily reflecting a 4.5% increase in our store count and store labor inflation, as well as a small increase in SG&A costs, where we benefited from the one-off credit of EUR 12 million relating to an insurance claim payout related to the Blue Yonder outage of quarter 1 fiscal '25, which we have reported on at the time.

As a percent of revenue, store operating costs were up just 40 bps to 20.7%, driven by inflationary pressure in store labor costs, partly offset by efficiencies in our distribution costs, which were down by 30% half-on-half.

On to Slide 44. SG&A costs were up EUR 6.5 million to EUR 199 million. However, I already flagged that this includes EUR 12 million benefit from the insurance payout we received relating to Blue Yonder incident. Excluding this benefit, SG&A costs were up EUR 18 million half-on-half. On a percentage of sales basis, SG&A was down 10 bps to 8.1% reported. However, removing the Blue Yonder benefit, SG&A costs were up 30 bps to 8.5% of sales.

The increase relates to the higher spend on transformation initiatives, such as accelerating our data and digital capabilities, enhancing our IT platform as well as driving efficiencies in our operating, finance and supply chain processes, which we've guided on for the year. Stephan highlighted in his section already the concrete business benefit that we are occurring from these investments.

Now turning to Page 45. In H1 fiscal '26, we took a decision to extend our depreciation policy and amend the accounting estimates for the useful economic lives of our leases from 5 years to 10 years, which reflects our intention to remain in stores for a longer period and more accurately reflects the true average lease length of our stores. This decision was made following the sharpening business strategy with a focus on the Pepco banner and improving store profitability in fiscal '26.

As part of the new strategy, Pepco's consequently revised store opening assumptions, including the continued use of stores beyond the initial breakpoints, extended refurbishment cycles and aligned capital investment decisions with longer life spans. Also, with the closure in H1 fiscal '26 of 75 loss-making stores, our store portfolio is very healthy, with circa 1% being loss-making remaining.

As of April '26, the weighted average lease period of the Pepco portfolio across 18 countries was nearly 9 years, and this includes some 1,700 stores opened since 2022, reducing the average. In the table on the left, we're providing a breakouts of the impact to our financials pre and post the UEL change for H1 '26, which we hope will help in adjusting your models.

The change in accounting estimate has been applied from the first of October 2025, the start of our fiscal '26 year. The right-of-use assets have been recalculated based on a 10-year useful life. This has resulted in an increase in the net liability position and an increase in the right of use of assets under IFRS 16 and net impact of EUR 21 million. There is also a modest reduction of IFRS 16 right-of-use depreciation with an increase in IFRS 16 interest of EUR 13 million, which I will comment on later in the interest section.

When combined with the EUR 34 million reduction in depreciation made up of a EUR 30 million reduction in PPE, depreciation and a EUR 4 million reduction in the right of use of assets, this leads to a net positive profit before tax impact of EUR 21 million in the H1 fiscal year '26 accounts. There is no impact on cash flow, similarly, no impact on our 0.5% to 1.5% leverage target as this is a pre-IFRS 16 target and therefore, excludes leases.

On to Page 46. This is a slide we already have seen at the full year results, so I won't spend too much time there on this, but remind you of a few key points. The refinancing we completed in November '25, so fiscal year '26 start put us in a much stronger position with maturity extending by over 3 years, a significant reduced average coupon and an annualized interest cost saving of EUR 14 million. Since the year-end, we've also extended our RCF the revolving credit facility of EUR 300 million to EUR 330 million.

At the end of H1, our pre-IFRS 16 leverage stood at 0.2x, below our target of 0.5 to 1.5 range. However, today, we announced our intention to undertake a onetime leveraging of our balance sheet, which will bring our leverage back to circa 1.0, back within the target range. Alongside existing cash reserves, we tend to raise some additional financing to fund up the EUR 400 million onetime capital return in H2 this year. We're currently in discussion with our banking partners, and we'll provide a further update as appropriate.

Turning to Slide 47. As a result of the refinancing, we reduced our average coupon from 6.4% to 4%, which combined with an increase in interest income and offset by a reduction in ForEx gains resulted in a EUR 9 million interest cost savings on our external loans in H1 '26. However, this improvement is offset by a one-off refinancing costs of EUR 12 million. Without this, the pre-IFRS 16 interest costs would have been EUR 12 million and our total net interest, EUR 46 million.

From fiscal '27 onwards, the true benefit of the refinancing will show through in our financing costs as we will have absorbed the refinancing cost in '26. As briefly mentioned, the EUR 13 million increase in IFRS 16 interest is a result of the change in our UEL policy from 5 to 10 years.

On to Slide 48. We delivered a significant net profit growth in H1 fiscal '26, up 52% on H1 fiscal '25. This was first and foremost, and I want to stress that driven by strong operational earnings growth of EUR 72 million, supported by a positive impact from our UEL change, EUR 16 million and a EUR 12 million one-off benefit from insurance payment relating to the Blue Yonder outage in quarter 1 fiscal '25, offsetting the EUR 12 million refinancing cost and a EUR 21 million increase in terms.

Despite a headwind from underperforming Dealz, group underlying effective tax rate was down 60 basis points driven by Pepco, which experienced a further 140 bps reduction in its underlying effective tax rate during the period, continuing the positive trend we've seen in fiscal '25.

On to page Slide 49, please. Here, you can see the movement in our cash position over the half which both started and ended, but that's coincidence by at EUR 464 million. We generated unlevered free cash flow of EUR 181 million, which was up EUR 130 million on H1 fiscal '25 driven by strong EBITDA growth and a significant reduction in our working capital outflow, standing at just EUR 12 million in H1 '26 versus EUR 146 million in H1 '25. This improvement was driven largely by a reduction in inventory as we increased markdowns during the half to clear all the stock and increased freshness across our product range.

Free cash flow conversion in H1 '26 was 91% of underlying profit after tax, a significant improvement on H1 fiscal '25 of 39%. Please remember that although CapEx was just EUR 48 million in H1, our guidance for the full year remains EUR 160 million to EUR 180 million, and we expect to be towards the top end of the range as we ramp up our investment in IT and digital and accelerate the store openings in H2 fiscal '26. Despite that, we remain on track to meet our upgraded guidance and deliver unlevered free cash flow of at least EUR 250 million for the fiscal year '26.

On to Slide 50. CapEx in H1 was EUR 48 million, as already commented on, just under 2% of revenue and broadly in line with H1 '25. We invested EUR 28 million in opening 138 gross new stores, up from 140 slightly down on the 104 gross new stores in H1 '25 and EUR 6 million on store maintenance, including EUR 36 million for a new look program approved in December. We also increased our IT spend from roughly EUR 3 million in H1 '25 to circa EUR [ 14 ] million, [ 1-4, ] in H1 fiscal '26 as we began to increase investment in enhancing our IT systems and digitizing our operations. Despite this EUR 48 million CapEx invested in the first half, we reiterate our full year guidance of EUR 160 million to EUR 180 million. So you can expect to see a jump in spend in H2 as we ramp up our digital transformation and store openings.

Over to Slide 51. We have slightly revised our overview of our capital allocation framework, which is sharpening of our capital allocation framework that we announced at the Capital Markets Day in 2025. Our priorities remain the same: to invest in organic growth, including new stores, technology initiatives and our supply chain to retain a strong balance sheet and to deliver returns to our shareholders. These returns are by way of ordinary dividend with a payout ratio of at least 25% and the return of excess levered free cash flow by the buybacks or special dividends. Here, I can reference Page 49 for you to look back to.

So far in fiscal '26, we have returned EUR 150 million to shareholders via buybacks, which includes traditional 2 EUR 50 million open market buybacks. One we just finished last week, and an additional EUR 50 million participation in the IBEX placement of our shares. In addition, we paid out the fiscal '25 dividend of EUR 53 million in April.

I'd like to share a little more detail relating on leverage and returns to shareholders over on the next slide. At our Capital Market Day in March '25, we provided a target leverage range of between 0.5 to 1.5x pre-IFRS 16 net debt to EBITDA. As you can see from this chart on the left, we have been operating either at the bottom end or well below that range in recent years, despite returning over EUR 200 million of capital to shareholders so far in fiscal '26. This morning, we announced our intention to take action to move our leverage closer to 1.0 in the fiscal '26 to ensure an efficient balance sheet and a lower cost of capital while also retaining financial flexibility.

On the right-hand side of the slide, you can see the percentage of unlevered free cash flow we return to shareholders in fiscal '25 and so far in fiscal '26 by both dividends and buybacks. We remain committed to returning all access cash after investments in growth to our shareholders. And in line with this, we've today announced our intention to provide an additional capital return to shareholders of up to EUR 400 million by way of a tender offer. This tender will be funded from a mix of existing cash reserves and external debt financing and will include pro rata participation from IBEX, our main majority shareholder.

In addition, we've clarified our midterm capital returns policy. From fiscal '27, we plan to return all levered free cash flow via dividends and share buybacks and have announced that over time we will be increasing our dividend payout ratio from the 25% paid in fiscal '25 towards 40% over time.

Slide 53. I wanted to take a moment to highlight the changes to our share count over the past 6 to 12 months, given the importance of our share buyback program. Our EUR 200 million share buyback program, which concluded last week, as a resulted in a significant reduction of the Pepco group outstanding share count on both a basic and diluted basis since the start of the financial year.

Our weighted average shares outstanding for H1 fiscal '26 to be used for basic EPS calculations is 559 million shares versus our shares in issue of 577 million. The dilutive potential share count has been restated to reflect the fact that the vast majority of the previous 70 million dilutive shares have not met the relevant performance criteria as of the 31st of March 2026, and therefore, should not have been included in the diluted potential share count. The weighted share count for diluted EPS is therefore 564 million for H1 '26. As at the end of the H1 fiscal '26, the number of shares in treasury was just over 26 million, which resulted in a share outstanding figure of circa 551 million at the period end. I would like to encourage all to reflect this into their models as combined with the intended tender is will have a material impact on our share count and therefore EPS.

Slide 54. I hope you've all seen the announcement on the 27th of April, it's just we upgraded our EBITDA guidance from at least 9% growth to low teens percent growth and our net earnings guidance from at least 25% to at least 50%. In addition, and for consistency, we're also today announcing an increase to our full year gross margin guidance from at least 48.4% to at least 49.4%. Note that this includes the 40 basis points contribution from FMCG exit, which we had flagged previously. In addition, we announced an increase of our unlevered free cash flow guidance from over EUR 200 million to over EUR 250 million, reflecting the strong H1 and our plans for the remainder of the year.

Our revenue guidance remains unchanged at 6% to 8% as does our capital CapEx guidance of EUR 160 million to EUR 180 million. As mentioned earlier, we expect Capex this year to be towards the top end of this range. With that, let me hand back to you, Stephan.

Yes. Thank you, Willem. Thank you, Hugo. Let me now quickly summarize before turning to our current trading and outlook. If you look at Slide 56. Look, we have delivered a very strong set of financial results this half. In particular, our 250 bps gross margin improvement and 52% improvement in profit after tax. We have announced the acceleration of our Western Europe rollout from fiscal year '27 onwards with our store count in the region had to double by fiscal year 2030. What's more? We are trialing small numbers of new stores in both Germany and to Ukraine this year which both represents a potentially large market opportunity for Pepco and our geographic expansion extends further with new store sets to open in North Macedonia next month.

Our growth is not just fueled by new store openings, but by strategic initiatives across our business, a key one of these is the Pepco loyalty app. We are really pleased with the progress in downloads and Club member numbers and even more so in the increased engagement we are seeing from Pepco Club customers. Lastly, but importantly, we have announced some key challenges to our capital allocation framework today. Later this year, we plan to return up to EUR 400 million via a pro rata tender buyback, as outlined by Willem already. And from fiscal year '27 onwards, we are committing to returning all excess leverage free cash flow to shareholders via dividends and share buybacks. In addition, we aim to increase our dividend payout ratio from 25% in fiscal year '25 to over -- to 40% over time as we remain focused on delivering strong returns to our shareholders.

Lastly, on to current trading and outlook, over on Slide 57. In the 6 weeks to 16th of May, Pepco delivered plus-1.5% like-for-like growth, excluding FMCG. April trading was impacted by unreasonably cold weather in some of our core CEE markets, with North CEE particularly affected. This delayed the normal transition into summer clothing ranges and weighted on volumes. Adding to this, Easter was earlier this year than the prior year. So some of the benefit fell into Q2.

Looking at the combined March and April due to neutralize the timing of Easter, Pepco delivered like-for-like growth of 2.1%. Western Europe continued to perform strongly, delivering double-digit like-for-like growth in the 6 weeks to 16th of May. Since the start of May, we have seen significantly improved momentum in Pepco overall, which generated plus-11.6% like-for-like growth in the 2 weeks to 16th of May, driven by both clothing and general merchandise with a positive like-for-like contribution across all countries.

Looking forward, in H2, as I have mentioned already, we tend to launch an up to EUR 400 million pro rata tender buyback. And for the fiscal year, we are on track to meet the guidance, Willem outlined for you earlier, including low teens EBITDA growth and at least 50% net earnings growth. As for our midterm guidance, we will provide an update on this with our full year '26 results in December.

With that, I would now like to hand over to your questions.

[Operator Instructions] Our first question today is coming from Mr. Michal Potyra of UBS.

I have three questions, if I may. So the first one is about the gross margin, in particular, the gross margin sustainability. We've noticed that the gross margins have been strong across the sector. Definitely FX was supportive. So if you could perhaps comment how sustainable do you think those levels are? And what factors could lead to a potential normalization from those levels? Should we expect any inflection, any impact from higher oil prices, et cetera. So that's the first question.

So let me take the question. So first, it's important to say that we have upgraded our guidance from 48% to 49%, plus 40 basis points coming from FMCG. So that reflects our view that we believe that the gross margin is sustainable. If we look at the drivers then it's important to also note that on FX, we continue to see tailwinds for the balance of the year. We are hedged into FY '27. And when it comes to other drivers like our cost prices that have been negotiated, these also have been locked in for the balance of the year. So on that basis, we believe that this for '26 is a sustainable delivery.

Another question on Western Europe. You really showed solid improvement on those markets, especially on EBITDA level. Could you perhaps provide more color what has really changed in those stores, in that business that suddenly from a drag that region starts looking promising.

Thanks, Michal. I will take that one. We have actually spent a lot of time explaining that, I think, already in the past, but let me just summarize. We have -- it's a mix of many levers that we've pulled, but as we've grown volume in growth in GM and clothing over the last 1.5 years now, our warehouse that was recently opened has allowed us to reduce distribution costs. So that's 1 lever, but also importantly, the distribution center opening in Iberia as such has helped us tremendously drive product availability and product freshness in our stores being an underpinning driver of our like-for-likes. We've also implemented measures to drive store efficiency as our new leader [indiscernible] strongly focused on that as well, driving store efficiencies, a further lag into the improvement of store EBITDAs.

Underlying gross margin also benefited clearly from the improvements that we've seen elsewhere across the group. So all-in-all, these combined effects drive, help explain the material step-up of EBITDA that we've seen both in regular stores, and then notably in the Pepco Plus stores as we exited the low-margin FMCG product and replaced and enriched with much higher margin clothing and GM. So that's underpinning and we believe this is a very sustainable trend. As you could see, we're approaching group levels now for these 2 key markets for us.

So maybe the last bit on Ukraine. You highlighted Ukraine as a potential growth opportunity. I understand it's early stages, but maybe you could help us size this opportunity a little bit more in terms of store count, revenue, profitability? And what really -- what are the first kind of milestones you're looking at on those markets?

Yes. I'll take that one. Thank you very much. Look, it's very early stage, as you just said. So we will not really guide on store count potential so on. So what we said is, let's just look at a couple of facts. First of all, we believe we have a very, very strong brand awareness and brand strength already in the country, more than 4 million to 5 million Ukrainians have lived in Poland for a large part of time. And we have a large customer base already coming back and forth also shopping with us. So we have, in addition, conducted a lot of market assessments there.

So we are very convinced now that our value proposition would resonate very, very significantly with Ukraine. I mean, it's a large country. 35 million plus inhabitants and also consumers in there. Plus, I believe the current situation also drives customers into strong value-seeking offers. So we are very convinced on this.

Second, operational efficiency. As you know, we do have infrastructure around the whole country, whether that's Hungary, Poland or Romania, so we will operate from there. This is already set up from our side, without massive pre-investments. So we believe that this will be quite efficient and at the end, ultimately highly profitable operation for us.

And to the pilot, we don't want to disclose too much, as we said, we will be very cautious as we have been with Western Europe. We go in, test, set up a couple of stores, up to 10 max maybe in the first round and see how it goes and look at whether we can achieve our internally set targets, review and then decide on the pace of acceleration, that is really it. And of course, on top of that, we monitor very, very closely the current and forward situation in the country, and it will be no surprise that we start the pilots more in the Western region of the Ukraine. But we will report on that and discuss that much more in probably the end of the full year fiscal '26 meeting.

Yes. If I may, Michal, we will both on Western Europe and -- which clearly is in an advanced stage compared to Ukraine disclose more on impact on our guidance at the end of the year for fiscal '27 guidance. And on Ukraine, we are announcing a test. We have proven that we are disciplined as a management team. We will do a number of stores. We will evaluate and then we'll make a decision and that will be in '27 that we will be clarifying that further. But in Italy, more details to -- sorry, on Western Europe, more details to be provided in fiscal -- in year-end December announcement.

The same is true for Germany. I would like to stress 5 stores proof now with new stores the potential and only then will we make a decision, if not or if to accelerate. So discipline is the key word in this team.

Makes sense. Maybe just one follow-up, a very technical one. I mean, do you see any scope to further reduce your effective tax rate in the coming years?

Let me take that question. We are very pleased with the progress we've achieved with our effective tax rate. I highlighted, and it's all in the detailed notes to the accounts. But we've had really good further progress on Pepco, new Pepco, slightly offset by the losses at Dealz, which, of course, then depresses our reported effective tax rate. We -- you have to reflect that we are expanding now more aggressively into territories with a slightly higher underlying tax rate, or effective tax rate than our average in Central Eastern Europe, notably Italy or Spain. But we also have historical losses to help us offset partly that.

So there will be a complex mix on our effective tax rate, but we do expect to be planning in that indicated 21% to 22% range, which we indicated over time as our stable effective tax rate for the company, which is a significant reduction from where we were in '23 and '24.

[Operator Instructions] We'll now move to Matt Clements from Barclays.

Congratulations on a very impressive turnaround and good set results coming through. Three questions, if I may. The first, on external pricing environment into late '26 and early '27. Obviously, amid the cost inflation we're seeing, any view on what you might see in terms of spring/summer pricing next year? And then related to that, can you also talk a bit about what you're seeing in terms of sourcing capacity in some of your key sourcing markets? So putting the input cost inflation aside for a moment, how it terms kind of evolved with your supplier base, both in terms of your scale, but also supply capacity in those markets. That's the first question. I'll come back to the other 2.

Okay. Thanks, Matthew. Hugo, yes.

So I think it's important to say that when it comes to the stability of the gross margin, which is what you're alluding to, also when it comes to the question on potential cost inflation to spring/summer 2027, we are not guiding here on the 27 margin, but we have upgraded our gross margin for this year. We are now saying we're going from 48% to 49% plus 40 basis points on FMCG. And we have -- when it comes to costs, we are a very reliable customer to our supplier. We have deep integration with the suppliers. We predominantly source direct and not versus -- not via agents. And we have relatively low markdown levels as we are not a fast fashion retailer. So we have lots of potential to manage our gross margin also going forward.

Thing to add to this because you also asked about sourcing and input cost, Hugo just alluded on this. We do have a very well established since many, many years, sourcing structure in Asia, across all of Asia. So at the moment, and we said that we don't see an impact on sourcing and input costs. And as you know, with long lead times, we are contracting far out already. So that goes far into next year. We will, of course, monitor closely. We -- nobody can predict, but definitely we feel that far beyond H1 next year already, we are well contracted and therefore, to be seen what's happening. At the moment, we would not see this as a bigger issue.

Very clear. Second question is on Germany. Obviously, widely perceived as a very competitive discount market. You put quite a bunch of potential white space opportunity out there. Obviously, you're talking about tentatives trials at the beginning. But can you just remind us on how you percieve Pepco's relative positioning in that market? How you think about the current concept and its resonation and also as well as site availability given that was an issue or the quality of site was an issue in the last phase expansion.

Yes. Good one. I mean, let me start with the latter side availability. And look, I think the situation we were in and when I joined had to find it was no real representation of the true potential of Pepco in Germany. So it was a very unstructured site acquisition done by previous management. We had to, and we decided to cut down those stores we have guideline. The remaining stores are performing extremely well. We are seeing strong double-digit like-for-like and a strong customer acceptance. So we know now and as we've done in Italy and Spain, we've identified the 2 to 3 segments in a market, which we really want to have and which works for us.

So over time, we believe there is ample of sites available for us, particularly, you also see a strong consolidation in the German market. So a lot of insolvencies there, and that makes space for us. Positioning-wise, I mean, as I said before, we believe we will fine tune a bit more, but we believe as in many, many other auto Western European mature markets, our almost unbeatable value proposition to customers resonates as well. I have personally traveled many, many stores in Berlin and others. It's visible. You have in currently subdued consumer sentiment environments.You see customers stronger looking at value.

So the value-seeking segments are becoming bigger, but customers in this segment are also more selective. And you need to have a strongly curated spot on value proposition product offering, which we believe we have. It's this combination of GM and apparel that we have now for many years created and particularly over the past 2 years, strongly improved in baby and kids wear, in toys and in many other categories that I think makes us very attractive. So we strongly believe there is a space for us in Germany.

However, as Wilem alluded on, also there, based on our current base, we will now slowly and cautiously add more stores to test basically our segmental structure in the market and see whether our internal targets are achievable. And -- but we believe there is a strong opportunity for us in there, absolutely.

Great. And the final question on your digital initiatives. Clearly calling out positive reception to that work in Poland. What's the next major step in the development of the digital proposition for Pepco, key learnings from the initial rollout? And also, how would you plan on leveraging? I'm presuming a much better data you're going to be getting on customer behavior, how you're going to leverage that going forward?

Yes. Yes. First of all, as I said, we are very pleased with our current development. It's ahead of our expectations. And it shows us the need, our person -- our customers had. They wanted to have better engagement tool, almost like a window to Pepco in the pocket. So that's what we have now with our loyalty app.

What are the next steps? First of all, we will further accelerate the app downloads and the app penetration in Poland. We continue to now learn and also increase our marketing activities around that. And your question on what is the objective really is DISS, so digitally influenced store sales. We will first of all, understand customers much better. It's important to understand that we not only create the app, but we also set up in totally new digital environment behind with an integrated data lake, BI systems and so on. So we understand customers better. We can communicate to them much more targeted, and we use smart couponing to also really, really almost on a personal level, drive them into our stores.

We want to make them obviously buy 1 or 2 products more in the basket. But that is now a large opportunity for Poland. We are now at 2 million downloads, roughly 1 million Pepco Club members. The potential is high in Poland. We are, as we speak, working on rollout countries. So it's a very replicable new very state-of-the-art technology, but we have not yet guided which country we want to go next. We will take this probably in the next year -- We'll probably guide on this in the full year results where we go next. But I mean, just think about the potential, the current Pepco Club customers basically on average by 2x more than the non-club members. And I mean this is huge. And we know that once we get customers into our shop, we convert. And therefore, we will take decision on which country next in the course of this year.

As we have no further audio questions. Christina, I'd like to turn the call over to you for any questions submitted through webcast.

Thanks, George. Yes, we do have a few questions from the webcast. Our first one is how has the Iranian war crisis impacted the supply chain of Pepco, including freight costs on imports from Asia.

Christina, do you know who ask the question?

This is from Rajesh with [indiscernible].

Okay. Thank you.

So I can take the question. I think it's important to say, as I believe we have communicated before that predominantly the ships that sail for Pepco from Asia into Europe sail around Africa, yes. So our ships do not pass Iran and only very, very limited 5% or less of our ships go through the Suez Canal. So that means that we are very, very resilient to the war when it comes to oil prices and sailing. And therefore, also what you have seen in the gross margin that has been presented to you is that there's a very limited impact or 0 impact from this in our margin. It did not deteriorate as a result of this.

Equally so, our distribution costs on land which, of course, have been impacted a little bit by the higher fuel prices, but it's not to the materiality that we've had to call out today.

Another question from Rajesh. We saw on one of your first slides that you are looking to increase share buyback by another EUR 400 million. Why is that? And how is it going to be financed?

I will take that question. So why is that? Well, we are well outside of our range of our guided leverage ratio. We have guided consistently in the past also on 0.5 to 1.5x EBITDA multiple pre-IFRS. We are today at 0.2x. That's an inefficient balance sheet, driving up cost of capital, which is negative to our shareholders and share price. And therefore, we believe that with this one-off EUR 400 million share buyback through a tender mechanism, we will bring us back into a more healthy and competitive balance sheet structure.

We will use internally generated funds, a significant portion of it. We will then seek a small increase on gross debt to fund the balance, which was again helping us then achieve at that 1.0x ratio as we indicated in the press release. We are discussing with our partner banks and have seen a good response to that already, but more details will follow when we announce details on the tender as such.

And we have a couple of questions on the Dealz sale from [ Kasper, Gregorich and Alvaro ]. Could you elaborate on the Dealz sale, what is expected scheduling cash flows? Do you expect any additional costs related to disposal? And also, is it planned to distribute any potential proceeds from the sale of Dealz to shareholders as a special dividend?

So let me take that question. We did -- we made it very clearly that we did not expect a material impact of the Dealz transaction on our balance sheet. Let's be very clear. At the moment, we are in a process where we still have several potential buyers in the final stages of the process. So you will appreciate, I cannot comment on financial terms and conditions because that would be sensitive in the process. And when we have clarity on the deals, and we will announce, we will also announce further details on the terms and conditions on the transaction. But we've been clear that the Dealz transaction is very similar in nature to the transaction that we did on Poundland.

Our next set of question is from Fabian [ Meyer ]. Could M&A become part of Pepco's growth strategy? Or is the focus firmly on organic expansion and returning excess cash to shareholders?

Yes. Thank you. I will take this. I mean, as you have seen from the outline, we again also have provided today we strongly believe now in the recalibrated Pepco Group as such. So Pepco, as you said, is, I think, a new European growth champion going forward. We know we have ample of opportunity in white space. We have a very efficient store format and standardized store format system that we want to roll out. And we, as Willem also alluded on, we see that all our new store openings performed very, very well.

So having said that, we strongly believe in organic growth going forward and to, at the moment, not see M&A as an opportunity or a necessity for us. And with that in that respect, we have updated our capital returns framework, where basically all excess levered free cash flow will be returned to shareholders.

And another one from Fabian. Have you received any indication from IBEX regarding whether it intends to participate in the planned pro rata tender buyback?

As we disclosed in the announcement, we said that our IBEX will participate pro rata. We are clear backing from IBEX for this plan. It is a managed reduction of share count overhang, and it's a very fair mechanism as a result to all shareholders who will have equal opportunity to participate in this tender. But details on the tender will be announced in due course, and then we will be clear on the mechanisms and -- the mechanism and the follow-up with Polish banks to execute this tender. But this will be later in H2.

And another question from Maria Kolesnikova from Millennium. Could you please talk us through the current trends separately in Poland and in South CEE markets? Polish consumers seem to remain strong and happy to spend more. Is that a true assessment? While other CEE markets might see consumers under increased pressure, how is it reflected in your sales and pricing, volume mix sales and strategy?

Let me maybe start on the strategic level and if Hugo wants to add some of the facts. Look, so I think overall, as I said before, we as Pepco feel perfectly positioned in various of those market dynamics. So on Poland, we absolutely agree with the statement that in Poland, there is a strong consumer segment. As a strong consumer, there is plenty of, let's say, disposable income for consumption, but consumers are selective. Also in Poland, consumers are selective. They are value seeking, and they are looking for best value for the price. And this is exactly where we are in the sweet spot. And after our operational improvement, particularly last year. We see now a nice 3% like-for-like increase in Poland in the first half.

South CEE is not -- cannot be generalized. As we all know, Romania has gone through and is going through some political trouble with VAT increase sales and also increases of various other charges that impact consumer spending power. So what we at Pepco do is we, of course, adjust pricing and promotion mix accordingly. But also in Romania, we have seen slightly reduced but still positive like-for-like revenue growth. So therefore, I don't think it's a generalization. The rest of South CEE is performing really, really well for us. It's one country that has probably slightly more macro headwinds, but I hand over to maybe Hugo if you want to add something to that.

I think it's important to say that the business is growing in its core market, Poland, and that we have spent a lot of time and energy on that and the growth is 3% ex FMCG, which reflects the interest from customers in our value proposition. And I think that's, I think, mostly to underline the comment made by Stephan.

Thank you very much. These are all the questions we have time for, so I'll hand back over for closing remarks.

Yes. Thank you very much. It was a rather rich announcement for this half. But I hope you agree with me, we have a couple of really good messages to the market but also to all stakeholders. We are very pleased with the results of this half year. And we'll update you more with the full year results announcement in December on the various topics around midterm guidance and Western Europe expansion and so on. For now, I'd like to thank you for your attention and for your interest, and wish you a good day.

Hello, and welcome to Pepco Group's FY '25 Preliminary Results presentation. Please note that today's presentation includes video content, so if you are joining via the conference call, you may wish to also join by the webcast on your computer to ensure you are able to view it. [Operator Instructions]

I'll now hand over to Stephan Borchert, Pepco Group's CEO. Stephan, over to you.

Thank you, Zaheg. Good morning, everyone, and welcome to our financial year '25 preliminary results presentation. Today is my first full-year result announcement for Pepco. It's been a transformational year for the group, and I'm excited to talk to you -- talk you through our progress.

I will first run through some highlights, followed by a detailed look at the strategic progress we have made this year before handing over to Willem, who will update you on our financial performance in fiscal '25 and our fiscal '26 guidance. I'll then give a quick summary before we open up to your questions at the end. With that, let's begin.

Slide 3. There is a lot to be proud of this year. Our company has worked incredibly hard to execute on our new strategy, and our strong progress is clearly reflected in these results. On Slide 3, you can see an overview of our highlights, which we will cover in more detail throughout the presentation. I won't dwell on them too long now, but just call out a few key points.

One of the big achievements this year was the sale of Poundland, which was not only a significant step forward strategically, but also a key element of improving the profitability of our business. We've put real focus on the improvement of our core customer proposition, which has allowed us to deliver strong growth this year, including returning Poland and CEE to like-for-like growth.

We delivered revenue of EUR 4.5 billion, up 8.7%, which does already include the roughly 2% headwind caused by our FMCG exit. We also increased our gross margin by 100 basis points while maintaining our focus on market-leading pricing. This was driven largely by our change in product mix out of low-margin FMCG and into higher-margin clothing and GM ranges, supported by operational improvements across the business. This is a clear confirmation that the underlying assumption of our strategy works.

We generated very strong bottom line profit growth with underlying PAT up 20% to EUR 219 million. This strong financial performance allows us to deliver enhanced capital returns to our shareholders, in line with our capital allocation policy. We have declared the dividend for fiscal '25 of EUR 0.096 per share, a payout ratio of 25%, which is up from our 20% payout ratio last year. We are also midway through our second EUR 50 million share buyback tranche with up to EUR 200 million committed by fiscal year '27, all of which is underpinned by our strong free cash flow position of EUR 334 million.

Over to Slide 4, with a quick reminder, our 5 strategic pillars. As set out at our CMD, our Capital Markets Day, in March this year, which hopefully you're all familiar with by now. As we move through the presentation, I will work through each of these in turn, starting with Pillar 1 over on Slide 5.

On Slide 5, our objective to simplify and streamline group is nearly complete. The sale of Poundland in June not only significantly reduced our FMCG exposure and streamlined our business, allowing for greater focus and attention on Pepco, it also improved the profitability and cash generation of the group, putting us in a much stronger position overall.

The last remaining piece now is Dealz, which has delivered a solid like-for-like growth of plus 1.9% in fiscal '25, but we are clear in intention to divest this business due to its FMG focus no longer aligning with our strategic vision. Dealz is now operating almost independently. With its own management team, we have separated its supply chain from Poundland and completed its migration onto its own ERP system. We have also implemented a new efficiency program to help drive margin accretion in the business and ensure we can achieve maximum value upon exit.

With all of these milestones now complete, Dealz is ready to be divested, and we strongly intend to exit this business during the current financial year, which will be the final step in refocusing the group solely on Pepco. Let me now turn to performance in Pepco, starting with Poland and CEE on Slide 6.

On Slide 6, I won't stay on the slide too long. But here, you can see a quick overview of our footprint and performance across both Poland and CEE. Despite our already strong presence in the region, there is still ample opportunity for new store growth with 200 net new stores opened here in fiscal '25. CEE is and remains the heartland of our business with 99% of all stores operating profitably.

We also focused on restoring like-for-like growth, returning CEE to growth in Q1 and Poland to growth in Q3 with both remaining positive thereafter. The turnaround in Poland has been a particular area of focus in restoring momentum across the group. So let me delve into a little bit more in detail on how we achieved this over on Slide 7.

Slide 7, in our recent past, we have underperformed in Poland, as you can see in our like-for-like chart here. But as our first and largest market, it was important to get things right in Poland and restore like-for-like growth, which I'm pleased to say we achieved in the second half of the year, delivering 2.4% like-for-like growth, including FMCG, which was up further to 3.9% growth on an excluding FMCG basis.

We achieved this largely by putting high focus on operational excellence in every corner of the business, from product availability in store and localized marketing through to enhanced store and field level oversight. This program has evolved into a permanent operating procedure in order to succeed in a highly competitive market. Other initiatives such as the replacement of FMCG products and the checkout snake in all our stores delivered added margin benefits through the year.

Let me outline the details of the turnaround a little bit more on Slide 8. Slide 8, our turnaround focused on 3 core areas: in-store product availability, improved product assortment and restoring sales growth in the bottom 20 store segment. Our product restocking was a fundamental issue to solve in a largely self-inflicted part of our historic like-for-like underperformance.

Previously, we were restocking items in standardized preset packs. So if you imagine 2 small, 2 mediums, 2 large and 2 held in every pack, for example, except this didn't take into account which items were selling, meaning we were constantly overstocked in low demand sizes and out of stock in the sizes customers are really looking for. This has both negatively impacted sales and customer experience. As part of the overall supply chain transformation, we have overhauled our in-store restocking progress -- process accordingly.

Another core part of our focus was turning around the bottom 20% of our stores, which although profitable were dragging like-for-like growth of the entire country. As you can see in the chart on the right, we have steadily improved like-for-like performance through the year in these stores, which is having a clear intangible benefit on the like-for-like performance of Poland as a whole. We've achieved this through a number of operational changes as well as commencing a refit program towards the latter part of fiscal '25 that has showed early positive results and will continue rolling out in fiscal '26. These changes have all been underpinned by our consistent focus on market-leading prices, which is integral to our proposition.

On Slide 9, I wanted to spend a moment on the expansion opportunity in CEE and Poland. In fiscal '25, we opened 215 stores across CEE and Poland. We have very strong economics in the region, and already, these new stores are generating an average store EBITDA margin of 19.5%. However, as these stores mature, we would expect them to trend towards our CEE average EBITDA of circa 22% to 23%. And as a reminder of what we outlined at our CMD in March, we continue to see a large whitespace opportunity in CEE in both our existing markets as well as in new ones like North Macedonia, which we will begin to enter later this year.

On Slide 10, you can see a summary of our Western Europe footprint as well as our financial performance in our key markets of Iberia and Italy. By end of fiscal '25, we have operated 467 stores in Iberia and Italy, plus 116 in Germany and Greece. With strong revenue growth, our average store EBITDA margin reached 11%, up 460 basis points, driven primarily by our successful Pepco Plus reformatting, which has been a big area of focus in the region this year. To be clear, this is an IAS 17 metric with the percentage even higher on an IFRS 16 basis. We expect to see this increase further as we progress into fiscal '26 and see a full-year contribution from those converted stores, which I will cover in more detail shortly. Overall, we are very confident that we have now found a way that could enable us to convert our Western Europe store EBITDA numbers close to group levels.

On to Slide 11. Across Western Europe, we delivered strong like-for-like growth, up 6.8%, including FMCG and up 14.1% on an excluding FMCG basis. We opened 29 new stores across Iberia and Italy, in line with our plan, as well as delivering the conversion of 117 Pepco Plus stores on time and on budget. We also improved our brand awareness with both Spain and Italy up 6 percentage points each, but still was more to do to bring recognition in these countries closer to our CEE levels.

Lastly, we completed our strategic review of Germany and have decided to close 28 of our 64 stores. However, the remaining sites are performing well and are generating good profits. So I'm happy to say that we are not exiting the country completely, but rather paring back our store footprint to give ourselves a stronger base, which we may be able to grow from again in the future.

Now, on to Slide 12, where you can see the performance across our regular and converted source in Iberia more clearly. In our regular stores, although there is a small impact from the removal of FMCG in our checkout snakes, the growth here in clothing and general merchandise is strong, up 13.7%.

In our converted stores, like-for-like growth was heavily impacted on an including FMCG basis, down 3%. This was expected as a result of the FMCG exit and is temporary. However, we are really pleased with the resulting performance of our clothing and GM categories, a 25.1% like-for-like uplift, again, excluding FMCG.

In addition, the replacement of low-margin FMCG products from these stores with higher margin clothing and general merchandise products led to a store EBITDA margin improving -- led to store EBITDA margins improving, excuse me, from 2.3% to 7% in fiscal '25, increasing further to 14.4% on an annualized basis. This is a significant uplift that really amplifies the opportunity in Western Europe.

Here on Slide 13 now, we have a quick case study that shows how our converted stores performed on average pre and post FMCG exit. Because the conversion took place at various points over a few-month period, the post FMCG performance is annualized to make the data comparable. As you can see, we have reduced the size of stores as the vast majority were larger than our typical store format, which, coupled with the fact that clothing and GM-led stores require a lower density of staff has allowed us to reduce the number of employees required to run each store.

As already mentioned, we experienced a slight drop in sales as a result of the FMCG exit, but a significant uplift in gross margin and store EBITDA margin, up 12.9 percentage points and 12.1 percentage points, respectively. The improved profitability of these stores puts us in an even stronger position going into fiscal '26.

On to Slide 14. In the chart on the left, you can see improvement in store EBITDA margin from fiscal '24 to fiscal '25 across the converted stores more clearly. And this was all achieved with very limited CapEx of less than EUR 45,000 per store. I'm also happy to note that the last remaining store, you can see in negative territory in fiscal '25, turned positive shortly after the year-end, further highlighting that there is a phasing impact. And as these stores mature, there is additional benefits to be realized going forward. However, even with that, we have achieved -- even with what we have achieved so far, excuse me, it is encouraging to see store EBITDA in Iberia and Northern Italy converging towards group level.

Lastly, on Slide 15, let's also have a look at our newly opened stores in this region. We wanted to get conviction that the further and at some stage soon also accelerated expansion would be possible at similar unit economics as group. Store EBITDA margins of newly opened stores are already strong at 15.9% on average. This is again on an IAS 17 basis, and we would expect this to increase as the stores further mature.

Since here at Pepco we are passionate about our stores, our colleagues and our customers, I wanted to briefly share with you some pictures of how we are now activating our presence in Spain and what the customer reactions look like on Slide 16. If you look at Slide 16, at the top left, you can see our 4,000th store opening in Madrid, which opened in September '25. This was a huge buzz around the opening, both in terms of excitement in our Pepco team and locally with shoppers, as you can see by the length of the queue forming as people waiting to be allowed in. The store was very well received by customers with opening day sales of more than 5x our country average.

The other 3 store photos you can see here, in the top right hand and in the bottom row, are taken from a store opening in December '25, so very, very recent, again, in Madrid. And again, you can see the excitement from our team and from local shoppers. We have started to dial up our marketing activities as well, investing in a large digital billboard on top of the Callao Cinema on Plaza Callao near the store, which has up to 150 million people per year passing through.

Now, going back to Slide 17. Here on Slide 17 is a quick reminder of a slide we showed at our CMD that highlights the whitespace opportunity in Spain and Italy. At the time, we indicated 60 to 70 new stores between fiscal '25 and '27. However, having now improved the economics of our stores in Spain, we are in a strong position to accelerate the speed of our openings a little by remaining disciplined in our capital allocation approach. We now expect to open roughly 75 stores across Iberia and Italy in '26 with the potential for further acceleration as we progress.

Moving on to Slide 18. We have made really quick progress on our digital transformation this year. Starting from a near-zero base, we are nearly ready for launch with our Pepco mobile app and digital loyalty program in Q1 calendar '26. Please be reminded that we have collected credit card token data from approximately 49 million customers and processed roughly 440 million transactions in fiscal '25.

The work we have done on our new website, customer data lake and app-based loyalty system will allow us to better utilize this rich information base and accelerate our capability, capturing more information on our customers' spending behavior to offer them targeted offers and promotions. At the same time, we also launched a trial of coupon-at-till this year to drive additional in-store sales. This launched just after the year-end and is now live across all our stores in both Poland and Spain with redemption rates and sales uplifts ahead of our initial expectations.

All of these initiatives form part of our digital customer engagement strategy intended to drive sales in our stores by increasing visit frequency, basket size, purchase frequency, and ultimately, customer lifetime value. To help bring it to life, I now want to play a short video of our mobile app to give you a better idea of what we will launch to customers when we go live.

[Presentation]

Thank you very much for sharing this video. Are we ready? Thank you very much for having a look at this exciting video. We are very excited about it. We have -- if you look at Slide 19, we have worked jointly with really experienced agencies in this field on the development of this app, and I'm convinced that it will resonate very well with our customers. I hope you have gotten the same impression.

Now, turning to Slide 20. Underpinning all our strategic -- all our other strategic pillars is the work we are doing to improve our operating platform. We have outsourced the management of our DCs, our distribution centers, to DHL, which is intended to deliver enhanced expertise, flexibility, but also efficiency savings. We have benefited from reduced transport costs as a result of our expanded DC network.

Fiscal '25 was the first full year of trading with our new Spanish DC, which allowed us to significantly reduce costs and lead times in the region. We have started to implement a more standardized operating model across the business, which both improves the customer experience and drives efficiency across Pepco. This work will extend further into fiscal '26 and '27.

And our work on data and technology is progressing well. We have laid good groundwork this year with our data lake, CRM and product life cycle management tools with a further step-up next year as we begin the rollout of our new ERP system across Pepco.

Finally, on Slide 21. We have prepared a quick overview of our ESG progress this year. In fiscal '25, we made significant changes to our management structure to reflect the evolving scope of our business. As a result, we have achieved a greater gender balance across our senior levels with women now representing 50% of our top leadership up from 28% in fiscal '24. We have appointed 3 new high-quality Board members with very strong international retail experience, and we are focused on reducing our environmental footprint. Scope 1 and 2 emissions are down 39% with Pepco Poland operating on 100% renewable electricity. We also focused strongly on the communities we operate in with regular initiatives to help the families shop with us and a EUR 3 million invested with NGOs.

I hope these slides have given you a good overview of the progress we have made this year, which we feel is a lot. And I will now hand over to Willem to run you through our financial performance before coming back to wrap up at the end. So, Willem, over to you.

Thank you, Stephan, and good morning, everyone. Now, let's get straight into it. Turning now to Slide 22, the slide gives a really clear overview of the Pepco Group growth trajectory. We're generating strong growth rates across each of our core metrics. At the top line, we've driven sales CAGR of nearly 16% over the period since 2022, while at the same time, increasing gross margin by 650 basis points, which has enabled even stronger profit conversion with an underlying EBITDA CAGR of 22% and underlying net earnings CAGR of 20%. You can see a real step-up in our net earnings growth in the recent 12 to 18 months, as we have enhanced focus on our bottom line conversion, which I will touch upon more later in these slides.

On to Slide 23, where we have the key financial highlights from our full-year fiscal year '25 performance. I won't go through each of these numbers in turn, but instead call out a few key points. We generate gross margin improvement of 100 basis points in a year, where we also prioritized our market-leading pricing across all our stores and categories. We delivered very strong underlying profit after tax growth of 20%, driven in part by work we have completed this year on interest and tax.

It's noteworthy that this includes a one-off IFRS 16 impairment charge before tax of EUR 38 million. We finished the year with a free cash flow unlevered of EUR 334 million, which allowed us to propose an increased dividend for full year '25 of EUR 0.096 per share, up 55%. We remain focused on delivering value to our shareholders, finishing the year with strong EPS growth of 20% in fiscal year '25.

Now on to Slide 24. Pepco generated strong revenue growth of 8.6% in fiscal year '25, as already shown by Stephan. We solidly focused on maintaining our market-leading pricing this year, which you can see by the minus 4.2% price impact on our revenue, but we drove strong volume growth in clothing and general merchandise across both existing and new stores, up 15% combined.

It is worth highlighting that revenues include a 2 percentage point negative impact caused by our FMCG exit, partially offset in the like-for-like growth of clothing and general merchandise. You can see the fiscal year '25 mix impact by quarter in the chart below. The phasing of which means we're thinking about our growth next year, we'll be facing a headwind in H1 that will ease off in the second half of the year. As Stephan has already explained in his Western European case study, this is gross margin and store EBITDA accretive and will drive an expected further 40 basis points margin improvement at group level for fiscal '26.

Here on Slide 25, we have a breakdown of the Pepco revenue. For the avoidance of any doubt, this is excluding Dealz. First, by geography, where you can see particularly strong growth in Western Europe, which is now increasing as a percentage of total Pepco revenue, up 2 points to 17% in fiscal year '25, as we continue to turn around our performance and drive growth in this region.

Our category split remained relatively stable year-on-year. It's worth calling out that kids and baby clothing is roughly 20% to 25% of Pepco sales. This is both clothing and toys, so split across both clothing and GM, but important to mention, as although a core and stable part of our core business, it is a much smaller proportion than may be typically assumed.

Generally speaking, general merchandise performed very well through the year. We had a difficult start in the first half in clothing caused by some of the larger self-inflicted issues of the past, which Stephan already alluded to earlier, but a strong second half as the output of our turnaround efforts began to materialize.

Now on to Slide 26. We have a breakdown of our like-for-likes. This slide is quite self-explanatory, so I won't go through each in turn, but it gives you a feel for the performance across our business throughout the year. Generally, we saw an uplift in like-for-like performance in the second half of the year, thanks to our strategic efforts to improve operational efficiency and drive growth. This is with the exception of Western Europe, which was, of course, impacted by the Pepco Plus reformatting and FMCG exit, which we covered earlier in the slides. However, on an excluding FMCG basis, we again drove improving performance throughout the year.

On Slide 27. This top chart sets out very clearly the turnaround journey we've been on in Pepco with consistently weak negative like-for-likes in fiscal year '24, turning positive in fiscal year '25. And as you can see from the bottom chart, this has been primarily driven by strong volume growth as we focus on restoring and maintaining our price leadership positions.

On Slide 28, you can see our gross margin performance in fiscal year '25, which was up 100 basis points, an effort we were very pleased with, especially given the price reinvestment made this year, as I outlined on an earlier slide. The uplift is in large part thanks to our strategic decision to exit FMCG, which allowed us to replace these low around 30% margin FMCG products with high circa 50% margin clothing and GM products, delivering 70 basis points of improvement.

We achieved a strong product margin uplift of 60 basis points this year, thanks to improved negotiations with more -- which more than offset our markdowns, which we used to right size our inventory and clear older stock. In addition, we also benefited from ForEx gains of 30 basis points as the euro strengthened throughout the year. Going into 2026, and as explained earlier, we expect to deliver 40 basis points of further margin improvement as a result of our FMCG exit in fiscal year '26.

On Slide 29, you can see the movement behind our EBITDA performance year-on-year, with growth mainly driven by a gross margin improvement. Store costs were up year-on-year, largely due to labor costs. Real wage growth has been high across large parts of CEE, and we also processed higher volumes this year, which required increased store labor and distribution costs. We would expect this impact to moderate going forward as real wage growth in CEE begins to ease, and we benefit from our FMCG exit, which should enable the stores to operate with a lower density of staff as already shown in our Western European case study earlier.

We are, of course, always mindful of our cost base and have efficiency in front of mind. During the year, we outsourced management of our DCs to DHL, which will deliver efficiency savings going forward. And over the coming years, we strongly believe that there is more we can deliver to further reduce costs, particularly in our supply chain.

On to Slide 30. Upfront, you can see we have restated the fiscal year '24 figure from the 199 some of you may recall from our pre-close in September. This is due to a number of one-off adjustments, roughly half of which relate to lease fees, dilapidations provisions and small stock adjustments in Pepco and the other half relating to adjustments required in Dealz. Full disclosure will be provided in our annual accounts, which we publish in January.

From this new EUR 183 million base, you can see we delivered a very strong profit growth of 20% year-on-year. Earnings growth was offset by a one-off impairment of EUR 38 million in fiscal year '25, without which EBIT growth would have been materially higher, plus 9.9% versus the 1.1% reported, fully explaining the gap to revenue growth. However, we also delivered an improvement in our interest rate as a result of a fall in EURIBOR, favorable ForEx and in our tax rate with our underlying ETR improving 6.6 basis points to 27.6%. This was largely driven by a reduction in our loss-making stores and turnaround in specific countries, for example, Iberia, as already explained earlier.

Following the year-end, we successfully completed the refinancing of our bond and term loan at significantly lower interest rates, which I will touch on more shortly. This, along with further improvements, we are confident we can deliver, and our tax rate will drive further improvements in our profit conversion going forward.

Unlevered free cash -- Slide 31, unlevered free cash flow was strong for the year, reflecting a number of particular drivers. CapEx, in particular, was low, which I will touch on more in the next slide, but this reflects strict discipline in allocation of capital, in particular in opening new stores, which was introduced throughout fiscal year '25. Working capital contributed EUR 80 million over fiscal '24 and fiscal '25, which we do not expect to continue in fiscal year '26. For fiscal '26, we guide on an unlevered free cash flow in excess of EUR 200 million with a normalized CapEx at the top end of our guidance range and some working capital investments as our business continues to grow.

Now over to Slide 32. CapEx was notably lower this year as we focus on restructuring our business to pivot back towards sustainable profitable growth. This meant taking a slight step back from investment in the short term. However, we still opened net new 247 stores in fiscal year '25. This is particularly in the area of new stores openings. Historically, stores have been opened far too quickly without due care and process.

Having slowed down in fiscal year '25 to reassess and restructure, we're now in a much stronger position going into fiscal year '26, and we will, therefore, begin to accelerate our investments accordingly, particularly in technology and IT. The business has historically underinvested in these areas, which we are working quickly and efficiently to rectify.

We also began trials on -- of our store refit program in late fiscal '25 with early great success. So we will increase our investment in fiscal '26, as we roll out this program more widely. As a result, you should expect CapEx in fiscal '26 to be at the top end of our guided EUR 160 million to EUR 180 million range. This is also significant -- this is, therefore, a significant driver of our free cash flow guidance of over EUR 200 million for fiscal year '26.

On Slide 33, as I mentioned earlier, towards the end of fiscal '25 and into early fiscal '26, we undertook a complete refinancing of our external debt facilities, the detail of which you can see here on Slide 33. This was a dual-track process consisting of a EUR 770 million in committed credit facilities, for which we were oversubscribed, as well as PLN 600 million, EUR 140 million, debut Polish bonds, which are part of an up to roughly PLN 2 billion program, refunds specifically to be allocated towards greener projects supporting our sustainability goals.

The refinancing not only reduced the average coupon by 2.5 percentage points, but also addressed the fact that our term loan of EUR 250 million has become current and was due for repayment in April '26. It extends our maturity by over 3 years, providing both stability and visibility for the group and creates an interest saving of EUR 40 million annually a year after. Lastly, it's worth noting that in recognition of our improved financial profile post the exit of Poundland, we also received a ratings upgrade from Moody's from the BB- to BB.

A quick reminder, here on Slide 34, you can see our capital allocation framework. Our priorities are to invest in organic growth, technology initiatives, in our supply chain and optimize our leverage, which leads to stronger free cash flow that will enable enhanced returns to shareholders. This year, free cash flow was very strong at EUR 334 million, which has enabled a proposed dividend payment of EUR 0.096 per share, a payout ratio of 25% of underlying profit after tax, up from 20% in fiscal year '24. We've also continued our share buyback program. In fiscal '25, we repurchased EUR 50 million worth of shares with a second EUR 50 million tranche started in quarter 1 fiscal '26.

To summarize, fiscal '25 quickly, on Slide 35, at our CMD in March, we set out clear guidance for new Pepco and for deals, which we have either met or exceeded this year. For new Pepco, we delivered revenue growth in line with expectations despite the FMCG headwind outlined earlier. Gross margin was significantly ahead of guidance, up 100 basis points, driving strong EBITDA growth, again, in line with expectations. We've covered this already, but as a reminder that EBIT this year was impacted by one-off impairments relating to an impairment review of Pepco stores without which growth would have been significantly higher.

Finally, on to Slide 36 for our fiscal '26 and midterm guidance. Starting with fiscal '26, we expect revenue growth of 6% to 8%, which takes into account the FMCG headwind, and we will continue to experience in the next year. As shown earlier in the deck on Slide 25, when I provided the breakdown by quarter, this will be a phase impact that will affect us more in the first half, easing off through H2, but accounting -- amounting to roughly 2% headwind through the course of the year. We expect gross margin of at least 48%. This is something we hope to exceed, but we remain cautious. We continue to prioritize market-leading pricing across our stores.

EBITDA growth will be at least 9%, and for the first time, we are now guiding on net earnings growth to align with our focus on generating sustainable, profitable growth for all our shareholders. In fiscal '26, we expect net earnings growth of at least 25%. Our CapEx guidance remains unchanged of EUR 160 million to EUR 180 million. In fiscal '26, you should expect us to be towards the top end of this range as we materially step up investment in areas such as store refits and IT.

Lastly, on underlying free cash flow and as an outcome, we expect this to exceed EUR 200 million. As for our midterm guidance, we are upgrading this today in a few key areas, and we realize this is not customary, but we feel the need to do this. We now expect gross margin to be at least 48.5% and free cash flow growth of -- exceeding EUR 250 million plus, up from the EUR 200 million plus earlier communicated.

We've also introduced a new metric of net earnings growth, which we expect to generate a CAGR of at least 15%. CapEx guidance remains unchanged at EUR 160 million to EUR 180 million. Now, you should expect to see higher levels of spend in the near term, particularly as we work to bring our technology and data capabilities in line with and where it should be. This should then start to reduce towards the latter years.

With that, let me hand back to Stephan.

Yes. Thank you, Willem. Let me now quickly summarize on Slide 38 before we turn over to your questions. On Slide 38, you can see that fiscal year '25 was a year characterized by swift strategic execution that really allowed us to transform the shape of the group in a short space of time, putting us in a far more agile and dynamic position as we move forward. It has also helped us deliver the strong results outlined today, including net earnings growth of plus 20% as well as an overall improved financial position. This growth enabled us to provide enhanced returns to shareholders through our regular dividend, which was up 55% and our ongoing share buyback program, which continues into fiscal year '26.

Pepco has created good momentum in fiscal '25 and has the clear potential of further strengthening its position becoming the leading variety discount retail in Europe with strong profitable growth and shareholder returns. These results put us in an excellent position going into fiscal '26. And coupled with the strategic progress we have made, they have given us confidence to upgrade certain parameters of our midterm guidance already after 1 year in this role as just alluded on by Willem.

On a side note, you may have seen this morning's announcement from Ibex Group. We are pleased to see that our majority shareholder has made a clear statement of support to the long-term development of Pepco by extending the operational period of -- for the Ibex Investments platform through to December 2028 with flexibility to further extend through to December 2030. This extension reaffirms Ibex's active support for our transformation strategy and for the multiyear value creation opportunity at Pepco Group.

Let me now finish on Slide 39 with an overview of our current trading and outlook. For the quarter-to-date, group like-for-like, excluding FMCG, was up 3% despite a drag from deals which experienced challenging trading conditions during the period. Pepco like-for-like, excluding FMCG, was higher at plus 3.9% for quarter-to-date. We had a strong start in October, offset by a weaker November, as seen across the industry, really, before returning to improved growth in December. Pepco like-for-like growth for the 3 weeks to December 13 was plus 7%, excluding FMCG, highlighting the improved trajectory as we had towards the end of the quarter.

Looking ahead to fiscal '26 as a whole, we expect to deliver between 6% to 8% revenue growth, and that is despite the circa 2% headwind from our FMCG exit, which Willem outlined earlier. This will be driven by continued volume growth across the group and our new store opening program. We expect to open circa 250 net new stores in fiscal '26 with circa 75 of them in Iberia and Italy. Fiscal '26 underlying EBITDA growth is expected to be at least 9% with underlying profit after tax growth of at least 25%, as we continue to drive strong bottom line conversion.

Lastly, we remain focused on delivering the divestment of deals during this financial year, which will be the last remaining piece of our FMCG exit and will complete our strategic focus or refocus on Pepco as our core and sole business, further improving the growth and profitability of the group.

With that, I would like to hand back to the operator and take your questions. Thank you very much for your attention.

[Operator Instructions] We'll now take our first question from Alison Lygo from Deutsche Bank.

Three for me, if that's okay, please. First one, just on whether we can unpick the drivers of that 6% to 8% revenue growth for next year. If we kind of put FMCG and that drags the side, just interested if you could add some color on what your working assumptions are in terms of category. How much is coming from kids? How much from kind of gaining wallet share in some of the broader kind of categories?

And then, I guess the second way of kind of coming at that, how are you thinking about that on a regional basis as we think Poland, CEE and then kind of Western Europe? I'll leave it there and give you kind of one at a time. But yes, that's my first question, please.

Thanks, Alison. Yes, I will take this. Yes. Look, as we do not guide down to this segment detail, but let me give you a flavor here. On the categories, we have seen very strong performance on our general merchandise category. But we have also seen, as stated before, strong positive progress on our lady adult wear area. Kids, it is, as Willem stated before, roughly 25% of our total business, if you take both categories, GM and clothing together, will also grow, but for us, it's very clear that we want to balance our like-for-like contribution here. And it depends a bit.

In Western Europe, we see very strong kids growth and baby growth. In the more mature markets, there is a strong -- at the moment, a strong focus on GM. But without -- how can I say that, now disclosing here too much, I mean, we have strongly dialed up our promotion and seasonal collection pipeline for next year. And we hope to see quite balanced like-for-like growth across the categories.

On the region, yes, I think it has become quite visible, right, that on a like-for-like growth opportunity at the moment, Western Europe is motoring ahead. I mean, this is to be expected. But it actually is also for us a -- how can I say that, a positive surprise above and beyond our expectations. It's very clear that the value proposition of Pepco resonates extremely well with customers in those markets.

And this really has to do with higher number of larger families, a more fragmented retail environment, lower competitive density, of course, as well, but we are really pleased to see that without adjustments on our product range, we see strong like-for-like continuing in Western Europe. So as I said before, CEE is going to be and remains our heartland, and we're working hard also in mature markets to increase our like-for-like. But at the moment, we see clearly also Western Europe are driving like-for-like growth in the group.

Great. That's really clear and very helpful. Then the other question I have is just on gross margin. So the midterm guidance now upgraded to that 48.5%, which is in line with what the Pepco format delivered this year. Just wondering how we should be thinking about the midterm moving parts within that in terms of whether you think there's room for kind of further underlying kind of gross margin expansion. Is there some investment into price still into that? Just how you're kind of thinking about those puts and takes?

Thank you very much, Alison. Let me take this question. Willem Eelman here. So first of all, our group margin was achieved at 48%, and the guidance that we provided is a group guidance. And we also indicated that there is a 40 basis points additional gain to be expected from the FMCG exit. And so that should define already our fiscal year '26 expectation, and it underpins also, they exceed 48.5% group outlined for the midterm guidance.

With regards to your question, we see continued tailwind from ForEx and purchase -- FOB purchase costs in local currency, which will continue to feed through in our numbers. But we also are conscious that we want to maintain our strong price competitive position whilst recognizing that maybe in some markets, we actually have some price opportunity. So this is a balanced and delicate mix to execute, where we continue to be true to our value discounting credentials, but where we clearly will seek to use the opportunities on gross margin to drive accelerated profit growth of EBITDA ahead of revenue growth. I hope that I've answered your question with that.

Our next question is from Matt Clements from Barclays.

I was just wondering if you could spend some time going through what you're seeing in terms of consumer backdrop in some of your key markets, and how you think about spending power of your customer base into '26?

And then the second question is around competitive environment. There's obviously been some positive news from the European Union recently with the introduction of the fixed levy on low-value e-commerce imports from the middle of next year. Just thinking kind of high level, do you expect a more favorable competitive backdrop next year than in recent years?

Thank you for the very good questions. Consumer, I mean, we -- in our business, it's always difficult to extrapolate consumer behavior. Consumers are dramatically volatile in retail in general. However, in our -- in the value space we are in right now, we see quite stable transaction numbers and also our customers, which we track coming back to us. November was a bit odd because it was a -- I think, quite a -- I think, a delay tactic of consumers to be honest, and everybody felt it a bit. So we saw transactions down, and we saw also the interest down, but we saw a lot of, I think, delaying of spend. This is not new. This is every year happening, but it seems to accumulate and accelerate a bit more.

But on a broader basis, on a more top level base, look, we see the wage -- the minimum wage inflation or wage increases coming down. So you would argue there is less disposable income. But of course, also inflation rates go down. So overall, i.e., we are not worried about spending power of our customers, particularly in our segment again. And this is a segment where we -- customers really look out for value.

And as Willem just alluded on before, we do have ample firepower to adjust prices and pricing, if needed, even if spending power would be -- would become under pressure, which I do not see so much at the moment. We see clearly a very discerning customer, considerate customers looking for better value for money. And I think we are right in the sweet spot here with our company.

On the competitive pressure, I mean, look, first of all, we operate across 18 countries. The competition is very, very different and very, let's say, nuanced across those markets. It's very clear that Poland and the northern part of CEEs are seeing a high competitive pressure. And -- but so far, this has always been the case, and we had, for many years, a strong overlap with our competitors, and that is not new.

On the Chinese online, look, there's -- my view there is very clear. On the one hand, we do, of course, support everything that helps European-based retailers to succeed and strive. But on the other hand, their one really strong advantage is the technology. The technology advantage of those players is just very, very strong, and this resonates with customers and consumers out there. So it's definitely a challenge to all of us to live up to it and to invest harder in your similar opportunities.

What happens on the de minimis and everything else? To be seen, to be honest. I don't think it's a secret that all of these players are now investing heavily in local distribution centers and local fulfillment structures. So I think that's something to really watch and see further, but it truly will have a transformative effect on the industry. And that is, in my opinion, definitely something that we need to look at over the midterm.

And our next question is from Michal Potyra from UBS.

Maybe the first question, you could comment on your inventory level. Is this at the level you like it to be? And perhaps you also could comment on the sourcing trends from Asia, and I know how easy it is about pricing trends, et cetera. Let me stop here and perhaps I can ask another question later.

Yes. Yes. Thank you for your questions. Inventory level, yes, we are -- I mean, just really, really top-level answer there, we are pretty much comfortable with what it is. We set our reduction target, which we internally meet. So far, we had seen more difficult times in this company here before. So we are definitely much better on top of these things. So I would say, overall, inventory levels are in line with our internal plans.

Sourcing trends, bigger topic, a very interesting topic. As you know, the largest part of our sourcing basically all is Asia. However, Asia is different. We have, of course, a large part of China -- Chinese supply, but also branched out significantly into Bangladesh, India and other countries.

The trends, I don't -- I mean, it's interesting that tariffs have, of course, given short-term buying opportunities into Europe, and that continues to an extent. But it's quite interesting that you see strong Asian manufacturers now also establishing factories closer to Europe, Northern Africa areas and things like that. So we are in very close discussions and touch and actually actions and activities with our suppliers to also start sourcing from other countries who are like Egypt and Africa.

This has -- potentially will have -- not yet in our numbers, potentially will have further FOB -- as COGS opportunities because, first, lead times are shorter. And secondly, in certain areas and certain product classes, the production costs are even lower than in Asia. So overall, I would say that's really what we see.

We personally -- we, as a company, continue to improve our processes. We have so many opportunities still in balancing better the value chain. So for example, where is design -- AI-based design and so on and so on. So we also work on efficiency here. But it's very clear that this spread between very sophisticated suppliers in Asia and non-sophisticated suppliers will continue. And we are, as a large volume buyer and importer definitely closer to the good ones.

I have 2 more follow-ups, kind of more technical questions, please. So the first one is on -- regarding your guidance, regarding earnings growth. I'm wondering if that includes the impact of buybacks, right? Because is it more like EPS or kind of pure earnings guidance? So just this question.

And another one regarding the composition of your like-for-like sales. I'm just wondering, looking at the Slide 27, where you are showing a volume versus price mix that appears to be more skewed toward direction of price in the fourth quarter, but also, I understand it includes FMCG. So maybe you can provide more description of your volume versus price trends, maybe excluding FMCG throughout 2025.

Thanks, Michal. I will take the -- your third question, and then Stephan will take your fourth. The guidance is on absolute earnings. Earnings per share, as we continue to expand our SPV, would even accelerate a bit further, but I would like to call out that on a diluted basis because of share-based programs, the number was actually for '25 fiscal, exactly in line with our underlying earnings growth number. So the guidance very clearly is on an absolute euro level and not on an earnings per share level, just to clarify.

And on the like-for-like, I think you see the strong bars on '27, basically because of our strong price adjustment initiative in '24, which started in Q4 '24. Going forward, we will monitor very strongly. As Willem alluded on before, we do have gross profit margin firepower to adjust prices if needed. But obviously, we're not going to go for another significant structured price adjustment as we did in Q4 '24. But of course, we continue to look at volume growth, right? That is very clear. Our like-for-like composition is not driven by price increases.

It is though driven by mix effects, FMCG out. We also see from a consumer side to an extent a larger demand for some of the higher priced products. So overall, we will continue on driving volume. That's what we're really after. We continue to monitor price and remain price leader and have a very strong initiative set for next year, driving like-for-like by driving customers into our stores with digital components and really increasing number of visits, number of transactions and higher basket.

[Operator Instructions] The next question is from Janusz Pieta from mBank.

Could you give us a bit more color on the -- on your incentive program? What dilution do you expect in 2026 and throughout the whole program?

Thanks for the question, Janusz. And I will come back to you on that in detail because I know the impact on my fiscal '25 numbers, as they were disclosed in the table, and we will further disclose a lot of details on this in our full ARA and annual report that we'll publish in Jan. But on the outward impact, I would need to have a check. So I'll come back to you on that one separately.

It appears there are currently no further questions in the phone queue. With this, I'd like to hand back for any webcast questions.

We've got a few questions on the webcast. And the first question is from Anna at DM BDM. Will customers be able to make purchases in the application?

Yes. Thank you, Anna. No, not at the beginning. As I also outlined in previous calls, we really clearly decided to start with a customer engagement strategy on digital that really is all about driving customers to store. We call it DISS, digitally-influenced store sales. And why is that? Because as I said before, we are sitting on an almost treasure, if you want, of 440 million transactions a year and 49 million token customers we have. This potential of understanding customers better, addressing them in a more personalized and customized way is already so high. But this is our absolute focus since the very beginning.

We, of course, are exploring, assessing all sorts of strategic options around the transactional strategy, which is a Phase 2 for us. But in the very beginning at the launch, there will be no transaction element in it.

Next question is from Grzegorz at Trigon. What is the contribution of the Western Europe Pepco business at the adjusted EBITDA or adjusted EBIT level?

Thanks, Grzegorz. Consistent. We don't disclose underlying profitability at country segment level. And so we will not do that at this stage either. However, it is very clear that from the material that we showed you on the turnaround in the Western European business, in particular, Iberia, the impact of FMCG has a material positive impact on our store EBITDA and henceforth country EBITDA. Most of that improvement will only become visible in 2020 -- fiscal '26 and beyond, as we have been reformatting those stores in the course of fiscal 2025, as we laid out on, I think, it was Slide 25, or whatever the number was, where we showed you the impact of FMCG at group level in our numbers.

Now, that was group level. Clearly, at Iberia level, the impact was even much higher. Therefore, we disclosed to you the impact of our store EBITDA levels in Iberia, which will turn into very healthy territory. We also were able and are able to recognize for the first time a DTA on the loss that we still made in '25, fiscal '25 that will be disclosed in our annual accounts, clearly indicating that we have real strong reasons and convictions that we are returning into total country profitability territory very shortly as we have exited the FMCG category.

So a bit of a long-winded answer because I do want to express real confidence that Iberia has turned the corner and that we see a positive profit contribution from Iberia going forward, but we do not disclose the absolute levels of profitability by country. I hope that answered partly your question, Grzegorz.

Thank you. And our next question comes from Jan at Odyssey. How much of the FMCG drag on like-for-like performance has been offset by products replacing that space, for example, clothing and general merchandise?

That's a difficult one to assess, in particular, for the snake. But for Iberia, as you could see that very clearly in the case study slide that we showed you, where we see a drop in revenue at store level as we do not fully compensate for the lost selling space, and of course, by giving expanded space to the GM/clothing categories, yes, we see significant uplift, but not to the full extent that we lose FMCG in that store. What is noteworthy, and what I would like to highlight your attention on, is that the stores in Iberia that did not have FMCG have continued and grew at consistent double-digit like-for-like level.

Thank you. Next question comes from Robert. As you stated, Ibex will stay with Pepco until at least December 2028. Does that mean they will not sell any shares of Pepco until that time?

Look, I think we -- running the risk of repeating myself here, this is really difficult for us to state. We can't talk on behalf of Ibex, but what you have seen today is clearly a token of support for the long-term strategy of this company. And we have, over the past year or so, really gotten to know Ibex as a responsible, considerate investor and shareholder over time and have no indication that they would not support our long-term strategy here. It's -- but it's also clear that long term, Ibex will definitely not stay our shareholder for the next, whatever, 10, 20 years. So something to be expected surely at some point of time, but it's not in our knowledge and discussion what Ibex is going to do with their share. We wanted to highlight the news this morning really as a token of support for our company and our long-term strategy here.

Great. Thank you. Next question, another question from Jan, Odyssey. Could you clarify what the midterm CAGR target for next earnings includes the projected growth rate of over 25% next year?

Yes, it does.

Great. Next question comes from Federico at UniCredit. First question, the revised FY '26 FCF guidance still includes the contribution from Dealz. Or does it take into account any contribution from the Dealz sale?

Dealz is broadly cash neutral in our numbers. And therefore, the underlying free cash flow is an annual free cash flow that we intend to -- that we expect to generate exceeding EUR 50 million on the Pepco format.

Thank you. Next question comes from Christoph. How does Pepco view and prepare for the ongoing decline in fertility in Poland and Europe? Any studies being conducted to evaluate the impact of this trend on the company? And are any measures being taken to minimize the impact of this trend on future revenues and profits?

Yes. That's a good question. I'd like to step back for 1 second really and say, as I said before, our total company revenue share in baby and kids is 25% across the 2 categories, roughly, right? So what we really see is, yes, we acknowledge a reduction in birth rates statistically, but if you really look deeper into it, what you basically see is you see a similar number of birth rates in household with 1 child. We see a reduction in household with several children. But what you see there is that the spend per child is definitely going up.

So -- and again, we are not in the high price segment of kids and kids wear and toys. That is, I think, probably a different discussion to have. We are in the value segment. And so, therefore, bar homemade mistakes on ranges or quality that is, of course, always a topic. But bar that, we don't see the demographic development as a major headwind for us. So what do we do? Definitely upgrading our ranges, making them a bit more attractive, increasing the fashionability elements, increasing particularly quality of product and fabric there and trying to just remain a great destination store for young families on a budget for this thing.

We do obviously look at it from country to country. For example, in our Western European markets. As you can imagine, baby and kids is running extremely well because there, we see birth rates stable and also larger families. And so what basically, of course, every good retailer would do is adjust some of the macro space in store and things like that. So we do all of this. But overall, again, bar some internal problems that could occur on ranges and product and availabilities and so on and so on, we don't see this as a major topic for us.

Next question comes from Igor at Gi Group. Congratulations on your results and the turnaround. I had a question regarding new openings in 2026. How many new locations are you planning for Poland?

Yes. As much as we would like to, of course, provide you with all the information, we do not disclose this in detail per market. But I mean just maybe on a bit more top, top level here, we, of course, have to make choices going forward, right? We basically, as Willem said before, deploy a very, very rigid capital allocation policy now. So every store has to deliver quite ambitious, but achievable threshold for us in terms of return. And so, therefore, we look really from market to market on return, cannibalization, white spot opportunity and so on. And it's clear that the white spot opportunities are moving a little bit down to the southern part of CEE, and of course, Western Europe. So therefore, we continue to open. But particularly in Poland, we put a lot of focus on upgrading our stores, relocating our stores and making them more attractive to customers to drive the like-for-like.

One final question from Grzegorz. Does the company consider enhancing disclosures in its FY '26 quarterly financial communication in line with market standards?

I will take that question. No, we will continue to report in quarter 1 and quarter 3, a limited set of trading updates, which mainly focuses on revenue, which is in most of Europe actually the market practice. I am aware that in Poland, there is a tendency to report a full or set of quarter numbers. But often, 1 month to 1.5 months later. And we believe that it's better to speedily inform the market on the actual revenue and where relevant gross margin trends in the business on a speedily and timely basis in those intermediate quarters whilst sticking to a very comprehensive, as we do today, H1 and H2/full-year disclosure. So yes, we considered, but for very conscious reasons, we will stick to our quarterly rhythm from quarter 1 and quarter 3.

Thank you very much. And that concludes the Q&A session. So I'll hand back over to Stephan for any closing remarks.

Yes. I remain -- thank you very much. I remain with thanking you all for your interest in our company. It's been a transformational year as we set out. The management team is really pleased with the results of this year and extremely motivated to continue this journey into '26. We have a strong pipeline of initiatives. We have a very, very tight framework of the strategy we've set out at the CMD, and we continue to deliver strongly against this strategy. And I'm looking forward to the next encounter with you and the next conversation with you on the next results. Thank you very much.

This concludes today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.